Morgan Stanley Expects the S&P 500 to Decline Between 10-15% by End of 2021

The S&P 500 Index declined on September 7 after analysts and investors expressed concerns over a slower than expected economic recovery. At the time of writing, the U.S. futures are trending lower which indicates the markets will pull back as the increase in COVID-19 infections might hamper global revival. Markets were also impacted by weaker-than-expected payroll data from the U.S. which led to several investment banks cutting growth targets for 2021. Investors are also concerned over the Federal Reserve’s plans to ease fiscal stimulus despite slowing employment numbers. According to Russ Mould, investment director at AJ Bell, “Investors on the whole have enjoyed a fairly decent run this year, but now attention is turning from the post-lockdown spending splurge to how corporate earnings might fare next year. There is a sense that some of the market forecasts have been too optimistic and so there could be some share price disappointment unless we see GDP figures pick up and the COVID delta variant stops causing so much trouble.” Morgan Stanley expects the equity market to correct While the S&P 500 and most major indices continue to trade near record highs, Morgan Stanley expects a pullback between 10% and 15% by the end of 2021. According to Morgan Stanley’s Wealth Management chief investment officer, Lisa Shalett, the market correction will be caused by multiple factors that include profit booking, falling consumer confidence, rising interest rates, the recent spike in COVID-19 infections as well as major geopolitical shifts. Shalett has advised investors to consider quality cyclical stocks part of the financial sector while buying consistent dividend payers in sectors like healthcare and consumer staples. Mergers and acquisitions gain pace in 2021 According to data from Dealogic, mergers and acquisitions activity has already touched $1.8 trillion in the U.S. and $3.6 trillion globally, in the first eight months of 2021. It seems companies are looking to both add scale as well as gain traction in a new industry, considering investment trends. AT&T spun off its WarnerMedia business and integrated it with Discovery to compete with streaming giants. Square acquired Afterpay for $29 billion, to enter the buy now pay later or BNPL market. John Deers also acquired a robotics startup to accelerate its development of autonomous farm equipment. The recent surge in M&A activity has allowed Goldman Sachs to generate over $1 billion in fees in each of the last three quarters. Goldman Sachs stock has in fact gained over 50% year to date. This year has also been one of the busiest in terms of initial public offerings or IPOs. A report from Axios states that 270 companies went public via an IPO in 2021, higher than the prior year’s figure of 218. This number does not include companies going public via SPAC (special purpose acquisition company) mergers. In 2021, SPAC mergers have risen to 423, already higher than the prior-year figure of 248. Bitcoin under the pump The price of Bitcoin remained volatile after it fell from almost $53,000 yesterday to $46,000 at the time of writing. On September 7, El Salvador became the first country to accept Bitcoin as a national currency alongside the U.S. dollar. The government is in fact offering a $30 bitcoin credit to individuals with access to Chivo, a federal Bitcoin wallet. The cryptocurrency can be used to buy goods and services as well as pay taxes and bank loans. Further, bitcoin holders will not pay capital gains when they convert the digital asset to USD. According to El Salvador, this move will improve financial inclusion as 70% of the country’s residents still don’t have access to traditional financial services. The transfer of Bitcoin is also cheaper compared to other fiat currencies which will lower the cost of inward remittances. Popular Reddit stocks According to Utradea’s social media dashboard, the popular Reddit stocks in the last three days are Clover Health, GameStop, and AMC Corp. Shares of Clover Health gained over 10% yesterday without any company-specific news. Further, all eyes will now be on GameStop that is expected to report its fiscal second quarter of 2022 results today. Analysts expect GME to report sales of $1.12 billion in Q2 with an adjusted earnings loss of $0.66. GME stock is trading 1.1% higher in pre-market today.

Morgan Stanley Expects the S&P 500 to Decline Between 10-15% by End of 2021

Sep 8, 2021 - Aditya Raghunath

9:10 AM

Newsletter

Image credit: Pixabay

The S&P 500 Index declined on September 7 after analysts and investors expressed concerns over a slower than expected economic recovery. At the time of writing, the U.S. futures are trending lower which indicates the markets will pull back as the increase in COVID-19 infections might hamper global revival.

Markets were also impacted by weaker-than-expected payroll data from the U.S. which led to several investment banks cutting growth targets for 2021. Investors are also concerned over the Federal Reserve's plans to ease fiscal stimulus despite slowing employment numbers.

According to Russ Mould, investment director at AJ Bell, “Investors on the whole have enjoyed a fairly decent run this year, but now attention is turning from the post-lockdown spending splurge to how corporate earnings might fare next year. There is a sense that some of the market forecasts have been too optimistic and so there could be some share price disappointment unless we see GDP figures pick up and the COVID delta variant stops causing so much trouble.”

Morgan Stanley expects the equity market to correct

While the S&P 500 and most major indices continue to trade near record highs, Morgan Stanley expects a pullback between 10% and 15% by the end of 2021. According to Morgan Stanley's Wealth Management chief investment officer, Lisa Shalett, the market correction will be caused by multiple factors that include profit booking, falling consumer confidence, rising interest rates, the recent spike in COVID-19 infections as well as major geopolitical shifts.

Shalett has advised investors to consider quality cyclical stocks part of the financial sector while buying consistent dividend payers in sectors like healthcare and consumer staples.

Mergers and acquisitions gain pace in 2021

According to data from Dealogic, mergers and acquisitions activity has already touched $1.8 trillion in the U.S. and $3.6 trillion globally, in the first eight months of 2021. It seems companies are looking to both add scale as well as gain traction in a new industry, considering investment trends.

AT&T spun off its WarnerMedia business and integrated it with Discovery to compete with streaming giants. Square acquired Afterpay for $29 billion, to enter the buy now pay later or BNPL market. John Deers also acquired a robotics startup to accelerate its development of autonomous farm equipment.

The recent surge in M&A activity has allowed Goldman Sachs to generate over $1 billion in fees in each of the last three quarters. Goldman Sachs stock has in fact gained over 50% year to date.

This year has also been one of the busiest in terms of initial public offerings or IPOs. A report from Axios states that 270 companies went public via an IPO in 2021, higher than the prior year's figure of 218. This number does not include companies going public via SPAC (special purpose acquisition company) mergers. In 2021, SPAC mergers have risen to 423, already higher than the prior-year figure of 248.

Bitcoin under the pump

The price of Bitcoin remained volatile after it fell from almost $53,000 yesterday to $46,000 at the time of writing. On September 7, El Salvador became the first country to accept Bitcoin as a national currency alongside the U.S. dollar. The government is in fact offering a $30 bitcoin credit to individuals with access to Chivo, a federal Bitcoin wallet.

The cryptocurrency can be used to buy goods and services as well as pay taxes and bank loans. Further, bitcoin holders will not pay capital gains when they convert the digital asset to USD.

According to El Salvador, this move will improve financial inclusion as 70% of the country's residents still don't have access to traditional financial services. The transfer of Bitcoin is also cheaper compared to other fiat currencies which will lower the cost of inward remittances.

Popular Reddit stocks

According to Utradea's social media dashboard, the popular Reddit stocks in the last three days are Clover Health, GameStop, and AMC Corp. Shares of Clover Health gained over 10% yesterday without any company-specific news.

Further, all eyes will now be on GameStop that is expected to report its fiscal second quarter of 2022 results today. Analysts expect GME to report sales of $1.12 billion in Q2 with an adjusted earnings loss of $0.66. GME stock is trading 1.1% higher in pre-market today.