“We believe that risk reward for equities is not all bad as we move into year-end,” Matejka said in a new note to clients on Monday. “In fact, we argued that we have entered the phase where the weak dataflow can be seen as good, leading to a [Fed] policy pivot, and the activity slowdown might prove to be less deep than feared.”
Matejka listed 10 reasons supporting his call:
1. Valuations appear attractive, both in absolute terms and compared to fixed income.
2. There are elevated cash levels among institutional investors, as well as an appetite to begin putting funds to work.
3. Investor sentiment is currently too bearish (often viewed as bullish indicator for stocks).
4. Federal Reserve hawkishness has likely peaked.
5. The U.S. dollar has likely peaked for the year.
6. The economic slowdown isn’t showing signs of a nasty recession.
7. Higher income consumers remain resilient.
8. Earnings estimates on the Street unlikely to be marked down aggressively.
9. Excess savings built during the pandemic are still providing a cushion to consumer spending.
10. The global economy will unlikely see a synchronized downturn.
Matejka’s view isn’t shared by several of his well-known peers on the Street.
Morgan Stanley’s Mike Wilson told Yahoo Finance Live that the overall conditions — ranging from slowing corporate earnings growth to rising rates to bruising inflation — are in place for the S&P 500 to take out the June lows sometime by the fall.
Such a move predicted would see the S&P 500 lose at least 8% from current levels.
- Wilson continues to guide clients into more defensive areas of the market and isn’t opposed to holding more cash than normal. If the sell-off happens, according to Wilson, we could witness the start of a new bull market in 2023.