Morgan Stanley strategists expect earnings per share for the S&P 500 to drop 16% this year, slamming the brakes on the possibility of a US equity rally. “We think that the downside risk to US earnings is now … We also see EPS disappointment ahead as revenue growth slows and margins contract further,” the bank’s strategists wrote. According to Moody’s chief economist, Mark Zandi, the Fed should not risk a downturn in order to lower inflation to its 2% target. “The Fed appears set to pause its rate hikes at its upcoming meeting. Thank goodness. Economic growth is fragile, the strong May payroll job gain notwithstanding. Hours worked are falling, so despite all the jobs, aggregate hours worked have gone nowhere this year,” Zandi said. During times of economic stress, it’s no surprise that many investors turn to gold. In six of the last eight recessions, gold outperformed the S&P 500 by an average of 37%. From March 8 through April 24, gold rallied over 9%, while the S&P 500 was up just over 3% in the same period.
Bloomberg via Yahoo Finance/Richard Henderson
Morgan Stanley Expects a Shock 16% US Profit Drop to Kill Rally
Morgan Stanley strategists anticipate a sudden pullback in corporate earnings will slam the brakes on a US equity rally, a call at odds with Wall Street estimates.
Instead, they are bullish on equities in Japan, Taiwan and South Korea and recommend an overweight position in developed-market government bonds, including long-dated Treasuries, and the dollar.
Earnings per share for the S&P 500 are set to drop 16% this year, according to Morgan Stanley strategists led by Andrew Sheets. That’s one of the most bearish predictions among those tracked by Bloomberg, and contrasts with bullish forecasts from the likes of Goldman Sachs Group Inc., which anticipates mild growth.
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Markets Insider/Zinya Salfiti
The Fed shouldn’t ‘sacrifice the economy’ in order to reach its 2% inflation target, Moody’s chief economist says
The Federal Reserve shouldn’t risk an economic downturn to lower inflation to its 2% target, and will likely pause its interest-rate increases this month, according to Moody’s Analytics chief economist Mark Zandi.
The US central bank is set to review rates next at a June 13-14 meeting, after raising them by 500 basis points since the first quarter of 2022. Money-market prices suggest a majority of investors expect the institution to leave borrowing costs on hold next week amid growing concerns about an economic slump.
“The Fed appears set to pause its rate hikes at its upcoming meeting. Thank goodness. Economic growth is fragile, the strong May payroll job gain notwithstanding. Hours worked are falling, so despite all the jobs, aggregate hours worked have gone nowhere this year,” Zandi tweeted on Sunday.
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How Does Gold Perform With Inflation, Stagflation And Recession?
From March 8 through April 24, gold rallied over 9%, outpacing the S&P 500 which was up just over 3% in the same period. The rally seemed to correspond with headlines of banking stress that could have the potential to alter the Fed’s hiking path. For almost a year the U.S. treasury yield curve has been inverted leading many analysts to believe that the U.S. economy is headed toward a recession.
These and other factors have drawn increased attention to the gold market, where options on gold futures have reached record trading volume in 2023. Gold is believed to perform well in times of economic stress. But does it? Let’s look at history to tell us how gold performs under three scenarios – inflation, recession, and stagflation.
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