By Senad Karaahmetovic
The Chief U.S. Equity Strategist for Morgan Stanley, argues that the selling pressure on U.S. equities may finally ease, at least in the near term.
While the U.S. witnessed another red-hot CPI report last week, the strategist argues that this type of data is “some of the most backward-looking economic series and tell us little about the future.”
“In our view, inflation has already peaked and could fall rapidly next year as comparisons become very difficult and discounting returns. This would argue for lower back-end rates, which could be supportive for stocks until the earnings are cut as we expect and/or a full-blown recession arrives,” he said in a client note.
The strategist sees technicals gaining an upper hand on fundamentals. Along these lines, one of the most bearish strategists on the Street in 2022 sees the case building for a “tradable tactical rally.”
Among other factors, he also noted that history shows earnings recessions are slow to play out.
“While it feels like this downward EPS revision cycle has been in process for a long time, we're only about 3 months in from the early July peak in numbers… It typically takes time for bottom-up consensus expectations to reflect the top-down earnings risk,” he added.
Finally, the strategist reiterated his “constructive view” on the Healthcare sector going into the year-end.