Morgan Stanley Issues Major Warning for Stock Investors – Investment Watch

From Peter Reagan at Birch Gold Group

In 2022, there have been a number of indicators that indicated the U.S. was in financial recession.

These indicators included (however weren’t restricted to): Again-to-back quarters of detrimental GDP progress, red-hot inflation all 12 months, and main market indices tumbling 10% to 33%. Bonds additionally had their worst 12 months since earlier than the Civil Warfare.

Regardless of alerts pointing to the U.S. financial system slowing in September 2022, it seems that cautious massaging of the definition of the phrase “recession” disregarded the thought it was truly, technically in a recession. (That will be a nasty political look, in any case!)

A lot of the mainstream media performed alongside.

However who wasn’t fooled? Effectively, me, for one – and Morgan Stanley’s high monetary consultants.

Listen – this evaluation is predicated on knowledge, not on hope or wishful pondering…

Morgan Stanley predicts shares will lose one other 22%

Whereas optimistic traders look as if they’re greedy at any alternative to say the “markets are effective” (like reacting favorably when inflation cools by 0.1% in a month).

Michael Wilson, who’s Morgan Stanley’s chief fairness strategist, isn’t so optimistic concerning the markets. In response to MarketWatch, he’s the knowledgeable who: “accurately predicted the 2022 stock-market selloff, which noticed all three main indexes cement their worst annual losses since 2008.”

Wilson prompt:

the S&P 500 might discover a backside round 3,000 factors by the tip of 2023. The index was buying and selling round 3,919 finally examine, in accordance with FactSet.

That’s a 30% drop in shares. Sound stunning?

Even a 30% drop wouldn’t be sufficient to return the Shiller PE ratio to its historic common. Proper this second, that will require a 41% plunge.

A latest Bloomberg article added an important piece of context that extra optimistic traders appear decided to miss:

One of many elements driving Wilson’s bearish view is the influence of peaking inflation. US shares rallied final week amid indicators {that a} modest ebbing in worth pressures might give the Federal Reserve room to probably gradual its interest-rate hikes. Wilson, nevertheless, warned that whereas a peak in inflation would assist bond markets, “it’s additionally very detrimental for profitability.” He nonetheless expects margins to proceed to disappoint by means of 2023. [emphasis added]

Wilson’s predictions aren’t new. He’s revealed two successive articles that projected a grim outlook for shares this 12 months. The first, from December 14:

We count on company gross sales volumes and pricing energy to deteriorate, resulting in revenue declines, even with out a recession, therefore our decrease earnings estimate of $195 per share for 2023. After we contemplate elements such because the Buying Managers’ Index (PMI) knowledge, the yield curve and correlations between revenue progress and the pace of the Fed’s fee hikes, we anticipate that 2023 year-over-year earnings progress will doubtless be materially detrimental.

The subsequent and extra strident warning appeared on January fifth of this 12 months, beginning with the phrases “Don’t Anticipate A lot from U.S. Shares.”

The a number of bear-market rallies staged by U.S. shares all through 2022 counsel many inventory traders haven’t embraced the chance of higher-for-longer rates of interest and a materially slowing financial system, at the same time as financial knowledge and Treasury yields proceed to sound warnings.

Right here’s why this issues: bear markets can’t finish with out “capitulation,” which suggests bulls giving up. As soon as consumers grow to be pessimistic, costs can return to actuality. (Bear in mind, paying 40% over the historic common for shares, based mostly on fundamentals, is a guess that their worth will enhance 40% within the close to future. It’s not rational! However there’s no psychological competency check required to open a brokerage account…)

Wilson continues:

We predict U.S. inventory traders could also be overly optimistic and see two key causes for concern heading into 2023:

Unattractive valuations: Fairness danger premiums – the potential extra returns one can count on for investing in shares over risk-free bonds – are nonetheless comparatively low…

Lofty earnings expectations: Consensus 2023 earnings projections for the S&P 500 Index sit round $230, a quantity that bakes in earnings progress of about 5%. To us, this estimate fails to account for the challenges that corporations are more likely to face, particularly as they begin to really feel the impact of tighter financial circumstances in earnest. These embrace decrease gross sales volumes and lack of pricing energy, probably on the identical time.

To summarize Wilson’s arguments towards a brand new bull run in shares:

• Shares are already costly
• They’re priced for one other 5% earnings progress
• Traders are ignoring each the results of the Fed’s fee hikes and recession indicators

As Benjamin Graham identified in his masterpiece The Clever Investor: a inventory bought with the hope that its worth will quickly rise unbiased of its dividend-producing means is a hypothesis, not an funding.

All speculative bubbles finish the identical method – in a panic. Till that second of capitulation and the following rush for the exits, extra rational and prudent people will take a distinct course.

After studying all this, you is perhaps asking your self: “How can traders shield their financial savings from losses if shares are projected to drop?”

Happily, there’s nonetheless a while earlier than panic units in. We don’t understand how lengthy we’ve, and we don’t understand how dangerous it can get. For these of us biding our time, although, there’s some excellent news on the horizon…

The consensus is in: gold is poised for an ideal 12 months

Zach Scheidt, editor of Lifetime Revenue Report, lately put a highlight on the reply. He thinks gold could have a file 12 months:

I predict that the worth of gold will attain $3,000 an oz inside the subsequent 12 months.

He bases this prediction on two elements:

1. The greenback peaked in September 2022 relative to different currencies, and has since crashed some 11.5%.
2. Bitcoin (BTC) has crashed since peaking in late 2021, and isn’t stealing gold’s conventional function as a possible secure haven proper now.

In response to fairly a variety of analysts and market veterans, gold is poised for a nice 12 months (I lined this lately). Listed below are two highlights:

Ole Hansen, head of commodity technique at Saxo Financial institution:

The metallic has additionally been buoyed by the reopening in China with photos of very crowded gold markets seeing pre-Lunar demand and the PBoC [People’s Bank of China] saying it purchased 62 tons of gold over the past two months of the 12 months.

David Neuhauser, founder and chief funding officer at Livermore Companions:

I believe as you look ahead, you begin to go searching and assume ‘the place is the most secure place to your funding when it comes to belongings?’ and the one place actually to go instead now’s gold, when it comes to understanding that you’re not going to see that debasement of your belongings. [emphasis added]

So in case you’re searching for safety towards inventory market plunges, particularly in case you’re nearing retirement (and don’t have time to attend out a protracted bear market), diversifying your financial savings with bodily gold may very well be best for you. If you happen to’re curious and wish to study extra, we simply launched an up to date model of our free data package on Valuable Metals IRAs proper right here.