The increase in the interest rate by the Fed conditioned the rise in equities, now Morgan Stanley gave its projections for the end of the year and next year.
The strategists of Morgan Stanley They believe that the S&P 500 will close the year at 4,500, which is an increase of only 2% from current levels. The prolonged period of “higher, longer” interest rates is increasingly affecting the confidence of both businesses and consumers, the investor said.
“For December 2024, we forecast a P/E multiple of 17.0x on a 12-month forward (2025) EPS of $266, which equates to a price target of $4,500 ~12 months from today. Our 2024 earnings forecast of $229 (+7% YoY) assumes top-line growth of 4-5% YoYplus modest margin expansion as labor cost pressures ease,” the analysts wrote.
The recommended investment strategy for 2024, they specified, consists of adopting a barbell strategy approach (or polarized strategy), combining defensive growth and late-cycle cyclical stocks.
“We believe that stock-specific risk remains elevatedwhich should favor a stock-picking environment and indicate a richer set of opportunities beneath the market surface, where valuations are more compelling than they are at the cap-weighted index level,” they added.
The near-term earnings outlook faces challenges despite a positive medium-term outlook. “The breadth of earnings revisions, a leading indicator, fell to its lowest level since March,” the analysts noted.
Key indicators such as the ISM PMIs and the Conference Board Consumer Confidence Index recently declined due to rising cyclical and geopolitical risks.
“In our opinion, The combination of these factors suggests earnings headwinds are likely to persist early next yearbefore consolidating a lasting recovery,” the analysts concluded.
Source: Ambito
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