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The US stock market is experiencing a massive correction, but compared to its main benchmark, the S&P 500, this collapse appears surprisingly mild, Bloomberg reports.
Morgan Stanley strategists believe that phenomenally strong corporate earnings, which are masking a selloff in a broader range of stocks, are saving the index from a deep decline.
A team of analysts led by Michael Wilson notes that the resilience of corporate earnings and the ongoing recovery of the US economy are the main reasons why the S&P 500 has fallen less than 10% from its all-time high in January.
Morgan Stanley analysts urge investors to look deeper: behind the façade of relative calm in the S&P 500 lies a full-blown bear market. Thus, earnings multiples for S&P 500 companies have already fallen by 18% since their October peak. The situation with the Russell 3000 is even more telling: more than half of its stocks have fallen by at least 20%.
"For us, this is not a sign of investor complacency. On the contrary, it's proof that the market has adequately, with surgical precision, priced in all risks at both the index and individual stock levels," Wilson emphasizes.
According to him, current prices are already priced in not only geopolitical fears but also the risks of a private credit bubble and the threats associated with the implementation of AI.
However, despite the unprecedented geopolitical risks, Wall Street analysts are exuding optimism. The consensus forecast is for an impressive 12% increase in corporate earnings for S&P 500 companies in the first quarter. Earnings season kicks off this week, and investment giant Goldman Sachs Group Inc. will be among the first to report its results.
Morgan Stanley believes the current stock selloff has entered its "final phase" and recommends investors prepare to increase their risky assets in their portfolios.