Wall Street is bullish on US stocks! Morgan Stanley is "switching from short to long", while JP Morgan remains "a remnant of the short side"

According to the financial news outlet Zhitong Finance, after one of the well-known Wall Street bears, Morgan Stanley's stock strategist Michael Wilson, "surrendered", his colleague, Morgan Stanley's senior portfolio manager Andrew Slimmon, believes that the U.S. stock market will break historical highs. This is because a large amount of cash still remains on the sidelines, indicating that investors are "fearful" of part of the cycle, and the subsequent "FOMO" sentiment will drive hot money into the market. Wilson raised the S&P 500 index's target level for the next 12 months - he expects the S&P 500 index to rise by 2% by June 2025, compared to his previous forecast of a 15% decline in the index.

In contrast, Wilson raised his forecast for the S&P 500 index, making Morgan Stanley's chief market strategist Marko Kolanovic one of the few bears on Wall Street. Under Kolanovic and his colleagues' bearish view, Morgan Stanley's year-end target for the S&P 500 index is at a minimum of 4200 points, implying a drop of over 20% from Monday's closing level.

Citigroup and Goldman Sachs are also among the few investment banks bearish on U.S. stocks, but they believe the decline will not be significant and are more likely to see a one-way trend, despite the possibility of significant short-term volatility. Ahead of Morgan Stanley, Citigroup's year-end expectation is 5100 points, below the current level, implying a moderate decline. Goldman Sachs' year-end expectation is 5200 points, also suggesting there is no more room for further upside.

For other investment banks, the mainstream view remains bullish on U.S. stocks. For example, peers at Bank of America and Wells Fargo expect the S&P 500 index to further rise to 5400 points and 5535 points respectively by the year-end. Deutsche Bank strategists have also raised their year-end target for the S&P 500 index from 5100 points last Friday to 5500 points by the end of 2024.

Morgan Stanley shifts from bearish to bullish, singing praises for U.S. stocks

Andrew Slimmon, senior portfolio manager at Morgan Stanley's investment management division, stated that despite the U.S. stock market hitting historical highs, investors are still holding onto cash tightly, indicating that there is still significant room for the market to continue its uptrend. Slimmon mentioned on Tuesday that the low expectations for stocks and preference for U.S. Treasury yields of 5% to 6% indicate that the market is still in a "fear" phase of the current cycle. Slimmon said, "These are signs of the early stages of a bull market. In the later stages of a bull market, people expect higher returns."

Due to strong economic data and corporate earnings, the S&P 500 index has risen by 11% so far this year, and traders are still betting that the Federal Reserve will start cutting interest rates this year. However, investor confidence remains low. According to the latest data from the Investment Company Institute, as of the week ending May 15th, funds flowing into the money market increased by over $16 billion to over $6 trillion On Tuesday, as investors awaited the key earnings report from chip maker NVIDIA Corporation (NVDA.US), the US stock market hit new highs. The company is a favorite in artificial intelligence, accounting for about a quarter of the S&P 500 index's gains this year.

According to Slimmon, a large amount of cash is still waiting to enter the market, which is a further catalyst for upward movement. He believes that if the stock market continues to rise, the fear of missing out (FOMO) sentiment may be strong. He stated that this would be a bigger stimulus than a drop in US Treasury yields. Last year, this portfolio manager correctly predicted a 24% surge in the S&P 500 index.

Slimmon said, "This is a typical cycle from fear to greed. For me, this just indicates that we are still in the fear stage. I firmly believe that the only thing that will stop people from staying on the sidelines is higher stock market returns."

He added that expectations for continued corporate profit growth and slowing inflation should make investors more optimistic. However, he noted that this does not mean the rise will be smooth sailing, as he expects pullbacks, including one during the seasonal soft period this summer.

It is worth noting that the day before Slimmon made the above comments, Mike Wilson, one of Wall Street's most famous bears and Chief Equity Strategist at Morgan Stanley, raised his target level expectations for the S&P 500 index over the next 12 months. Wilson currently predicts that the S&P 500 index will rise 2% by June 2025, whereas previously he had expected the index to fall 15% by December.

As the market continues to rise, this strategist's pessimistic expectations for 2023 did not materialize, leading him to concede and raise the S&P 500 index target from 4500 points to 5400 points. This shift transformed his forecast from one of the lowest on Wall Street to one of the predictions setting new records for the index.

"In the US, we expect strong earnings growth per share, while price-earnings ratios will moderately compress," Wilson wrote in a report last Sunday, when they were discussing views on various assets for the second half of the year.

In recent months, Wilson has consistently stuck to his target of 4500 points for the S&P 500 index, even as the index repeatedly hit new highs. In March, he stated that given the lack of widespread profit growth among companies, there was no reason to raise the target. Last month, he mentioned that due to increased economic uncertainty, he would avoid making significant predictions about the index's direction. Overall, Wilson expects a "sunny macro environment" to support risk assets in the second half of the year, but he reiterated that as data becomes more volatile, broader economic outcomes are becoming increasingly unpredictable

Morgan Stanley: A "Bearish Outlier"

Wilson's upward revision of the S&P 500 index forecast has made Marko Kolanovic, Chief Market Strategist at Morgan Stanley, one of the few bears on Wall Street. In a report to clients later on Monday, Kolanovic reiterated his views, urging them not to buy stocks. He acknowledged that this negative outlook has hurt Morgan Stanley's model portfolio allocation as global stock markets hit record highs over the past year. He listed a series of reasons to maintain a pessimistic stance, including high valuations, the possibility of interest rates remaining restrictive for a longer period, rising inflation data, consumer pressure, and geopolitical uncertainties.

He admitted, "Our negative stance on the stock market over the past year has hurt the performance of our multi-asset portfolios." However, he added, "We currently do not see the stock market as an attractive investment, and we see no reason to change our stance."

Following Wilson's optimistic outlook on the U.S. stock market on Monday, Kolanovic is now one of the few "outliers" among the major bank stock strategists on Wall Street. Among the large banks on Wall Street, Morgan Stanley has the lowest year-end target for the S&P 500 index at 4200 points, implying a drop of over 20% from Monday's closing level.

Meanwhile, Kolanovic's colleague at Morgan Stanley, Dubravko Lakos-Bujas, expects the S&P 500 index to fall by over 20% by the end of this year. Another Morgan Stanley colleague of Kolanovic, Mislav Matejka, stated on Sunday that if economic data remains weak, earnings in the third and fourth quarters in the U.S. are unlikely to increase significantly to meet the current consensus. Matejka wrote in a report, "Expectations for earnings growth in the second half of the year for U.S. companies are quite optimistic, especially considering the significant softening of economic activity."

Citigroup and Goldman Sachs: Expectations of Continued Decline in U.S. Stocks, but with Volatility

Ahead of Morgan Stanley, Citigroup's year-end forecast is 5100 points, lower than the current level, implying a moderate decline. Goldman Sachs' year-end forecast is 5200 points, also suggesting no further upside potential. However, the senior stock strategists at these two banks, Scott Chronert and David Kostin, did not issue warnings of an imminent collapse like the Morgan Stanley team did Goldman Sachs strategists say stock market investors are preparing for significant market volatility, with upcoming events such as Nvidia's earnings report likely to exacerbate market fluctuations. In a report on May 20th led by Andrea Ferrario, a Goldman research team wrote that driven by optimism about economic growth and monetary policy, Goldman's risk appetite indicator reached its highest level since 2021 last week, but the momentum has slowed down.

Strategists point out that Chicago Board Options Exchange volatility index options data show an increase in demand for hedging against sudden market declines as the index hits historic lows. Ferrario stated, "This indicates that the market has low risk expectations of continued decline from current levels, but is concerned about temporary spikes in volatility. In a highly concentrated market, special events can also have an impact." He added, citing Nvidia's earnings report scheduled for release on Wednesday as an example.

With investors betting that economic data will allow the Federal Reserve to cut interest rates later this year, the US stock market hit historic highs again this month, after a brief setback in April's rebound. As corporate earnings season exceeds expectations, market participants point out that the risks threatening the stock market rally are minimal.

Citigroup data shows that long positions in S&P 500 and Nasdaq 100 index contracts rose slightly last week. Citigroup strategist Chris Montagu wrote in the report, "The S&P 500 index is currently 'almost entirely one-way,' but 'profit levels are just starting to develop, limiting position risk.'"

Most investment banks are bullish on US stocks

Meanwhile, peers at Bank of America and Wells Fargo expect the S&P 500 index to further rise to 5400 points and 5535 points respectively by the end of the year. With the US stock market continuing to climb under the strong push of the economy and corporate profits, and the ongoing excitement about artificial intelligence, both banks have raised their initial expectations for this year. Deutsche Bank strategists have also raised their year-end target for the S&P 500 index from 5100 points last Friday to 5500 points.

Kolanovic's outlook for the US stock market has been wrong for the third consecutive year. The S&P 500 index has risen by 11% so far in 2024, despite his predictions of a decline. He remained pessimistic when the stock market rose by 24% last year, and was optimistic for most of the time when the stock market fell by 19% in 2022. The strategist reiterated his defensive investment portfolio bias, recommending investors to reduce stocks and credit, and increase exposure to commodities and cash