2023-05-15 15:00:27
Morgan Stanley strategist Michael Wilson predicts that the debate over raising the US government’s US$31.4 trillion borrowing limit will trigger some sharp volatility in US stocks. Wilson is one of Wall Street’s leading bearish U.S. stock strategists.
Wilson wrote in a report that most clients believe the matter (debt ceiling impasse) will eventually be resolved, but in the short-term there will be some volatility in U.S. stocks, and many see it as a lose-lose for the market.
The strategist, who accurately predicted the U.S. stock market rout in 2022, said that even if the tree is raised before what is now called X-Day (the day the U.S. Treasury Department runs out of cash), given the sensitivity of U.S. stocks to near-term changes in liquidity , the debt ceiling may also squeeze liquidity, leading toS&P 500 Indexgo lower.
The U.S. president and Joe Biden, the Speaker of the House of Representatives McCarthy, have been deadlocked for months over budget negotiations, and they plan to meet on Tuesday to discuss the issue. A U.S. default might trigger a sell-off in markets, a spike in borrowing costs and a hit to the global economy that might rival the 2008 financial crisis.
According to historical analysis by Morgan Stanley strategists, energy stocks and utilities stocks have performed relatively best in the previous debt ceiling debate. After performing well.
So far, the debt ceiling standoff has had little impact on U.S. stocks as investors remain focused on the outlook for economic growth and corporate earnings. Despite an overall better-than-expected first-quarter earnings season, Wilson said he remains pessimistic regarding full-year corporate earnings due to slowing economic growth.
“There’s a loud voice in the market below the surface — it’s bracing for further disappointing macro performance and earnings,” said Wilson. That’s keeping investors from plowing into regional banks and lower-quality cyclical stocks, though These stocks have underperformed recently.
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