(Bloomberg) — As bond yields fluctuate, US stocks are expected to face a bumpy finish to the year following a November rally, according to insights by Michael Wilson of Morgan Stanley.
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Despite the S&P 500’s approximately 20% gain this year, Wilson, who has been generally bearish, noted that December could bring near term volatility in both rates and equities. However, he believes more positive seasonal trends, as well as the “January effect,” will provide support for stocks next month.
November saw the benchmark S&P 500 surge around 9%, marking one of its strongest November rallies in a century, driven by hope that interest rates have peaked. However, this surge has left the index in overbought territory, potentially indicating an impending selloff.
Despite this, the S&P 500’s MACD momentum, which measures the relationship between two moving averages of a security’s price, remains positive. This is due to a slowing economy and a drop in inflation that could lead to expectations of rate cuts by the Federal Reserve as early as March. Fed Chair Jerome Powell recently pushed back against the anticipation of cuts in the first half of 2024.
Wilson noted that while investors have anticipated a Fed pivot multiple times over the past year, this time they have shown the most support, expecting it to unfold “amid a still healthy macro backdrop.” Such a scenario “would be the most bullish outcome for equities,” the strategist wrote.
Forecasters at other major financial institutions have also expressed optimism for the outlook of US stocks in the coming year. Bank of America Corp., Deutsche Bank Group AG, and RBC Capital Markets have predicted a record high for the S&P 500. However, Wilson remains broadly neutral about the year overall, anticipating the index to end 2024 around 4,500 points — approximately 2% lower than current levels.
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