Bloomberg: Team at Morgan Stanley voiced concerns about the potential of decline in S&P

Source: Bloomberg

Author: Lu Wang

Article: Original article

Publication date: Tuesday, November 29, 2022

Bulls getting accustomed to the Federal Reserve's rate hike policy are facing yet another threat that a team at Morgan Stanley says could send stocks to fresh lows.

This is a rollback of a ten-year-old quantitative easing program. Now that it has been cancelled, the reverse process, known as quantitative tightening, is taking place. Rising rates are the main driver of the bear market this year. But an analysis by Morgan Stanley's sales and trading team suggests that in 2022, the Fed's balance sheet cuts have had a bigger impact on stocks.

Anyone expecting a slowdown in rate hikes to help stocks exit a bear market could get a warning signal from the continued impact of the Fed's quantitative tightening (QT) program, Metli and his colleagues wrote in a note earlier this month. They say the S&P 500 will drop 15% by March based on historic patterns and projected money flows in coming months.

Forecast:

Decline in S&P over the medium term and long term