Morgan Stanley believes that volatility is not leaving Wall Street anytime soon, and the S & P 500 will be lower a year from now amid economic and earnings uncertainties. The Wall Street firm set its 12-month base-case target for the S & P 500 at 3,900, nearly 3% below Tuesday's close of 4,001.05. The bank expects the equity benchmark to fall to a range of 3,700 to 3,800 before working its way toward 3,900 next spring. "We expect equity volatility to remain elevated over the next 12 months. one of the hallmarks of this cycle is likely to be elevated economic and earnings uncertainty," Mike Wilson, Morgan Stanley's head of U.S. equity strategy, said in a note. "Add in the elevated geopolitical uncertainty that has arisen over the past several months amid the Russia/Ukraine conflict and the table is set for volatility to persist." The S & P 500 has fallen about 15% in 2022, and it briefly tumbled below 4,000 to the lowest level in a year during the recent sell-off. The tech-heavy Nasdaq Composite has been hit even harder, down nearly 25% year to date and off roughly 27% from its record high, reached last November. The Federal Reserve last week raised its benchmark interest rate by half a percentage point , the most aggressive step yet in its fight against soaring inflation. Fed Chairman Jerome Powell indicated that another two, similar-sized moves are coming in June and July. The central bank's aggressive action made many believe that it could tip the economy into a recession. Morgan Stanley said it expects to see elevated performance dispersion in this type of environment and favor companies that can deliver on cash flow and operational efficiency. "We stick with our defensive bias given our broadly risk-off view and remain overweight health care, utilities, and real estate," Wilson said. Stocks in these sectors typically provide consistent dividends and stable earnings regardless of the state of the overall market.
Traders on the floor of the NYSE, May 10, 2022.
Morgan Stanley believes that volatility is not leaving Wall Street anytime soon, and the S&P 500 will be lower a year from now amid economic and earnings uncertainties.