Mike Wilson, chief U.S. stock strategist at Morgan Stanley, warned that there are too few stocks supporting the S & P 500’s recent record high. The US stock market will be vulnerable to some shocks in the future, especially the rise in interest rates, and the S & P may encounter an obvious correction soon.
Wilson’s recent report points out that the market width of US stocks is very narrow. On Friday, the S & P 500 closed at a new high, up 0.72% for the whole week, while the equal weight index of the S & P 500 fell 1.5%, indicating that ordinary stocks did not participate in the rise like big blue chips. Apple contributed 105% of the S & P 500 and Nasdaq 100 index returns, and 88% of the Dow’s return.
The average weight index of the S & P 500 is still below its high on June 8, and the peak of the cumulative up and down line of the S & P 500 on August 12 has not been confirmed to be a record high.
Wilson believes that the current U.S. stock rally is partly due to U.S. bond yields approaching historical lows. Since the beginning of this year, apple and four other large cap stocks have risen by 49%, while other stocks have fallen by 4%. This unilateral market situation has created risks for the rise of US stocks.
Morgan Stanley analysts such as Wilson predict that in the next few weeks or months, there will be a panic about interest rates, followed by panic about growth, which may eventually lead to the first tradable adjustment of major U.S. stock indexes, which is “likely to come soon.”.
In general, Wilson’s benchmark forecast is still bullish on US stocks and still believes that US stocks are at the beginning of a new cyclical bull market, but the recent narrow market width means that the time is ripe for the first substantial and tradable adjustment.
Wilson pointed out that a number of negative factors had emerged last week, including the retrogression of the resumption process of many American universities; the deadlock in the US Congress on a new round of financial rescue; the minutes of the meeting of the Federal Reserve last month did not show that the Federal Reserve was ready to link inflation with forward-looking guidance on interest rates soon, and showed no great interest in adopting yield curve control (YCC) The market is disappointed.
Wilson pointed out that due to the obstacles to the resumption of university courses and the possible poor economic data, the U.S. Congress may be forced to introduce a fiscal stimulus plan larger than expected by the market, which may push up the yield of fixed income. Once the two parties in Congress break the deadlock and reach a $2.5 trillion to $2.5 trillion stimulus agreement, but the Fed is not willing to adopt YCC, long-term interest rates may rise sharply, and US stocks are not prepared for this.