Morgan Stanley on the benchmark US equity index ahead. Their tone is very cautious:
- Given the strong technical support just below current levels, the S&P 500 can continue to rally toward 4000 or 4150 in the absence of capitulation from companies on 2023 earnings guidance.
- Conversely, should interest rates remain sticky at current levels, all bets are off on how far this equity rally can go beyond current prices.
- As a result, we stay tactically bullish as we enter the meat of what is likely to be a sloppy earnings season.
- We just don't have the confidence that there will be enough capitulation on 2023 earnings to take 2023 earnings per share forecasts down in the manner that it takes stocks to new lows. Instead, our base case is, that happens in either December when holiday demand fails to materialize or during fourth-quarter earnings season in January and February when companies are forced to discuss their outlooks for 2023 decisively. In the meantime, enjoy the rally.
There's nothing like a rally to prompt bullish calls ...