Morgan Stanley strategists who accurately predicted the pullback in the U.S. stock market last month said that if the non-farm payrolls data released this Friday further proves the resilience of the economy, those stocks that have lagged behind in the U.S. stock market rebound may be boosted.
Mike Wilson, chief U.S. equity strategist at Morgan Stanley, said in a newly released report that stronger-than-expected non-farm payrolls data may give investors “greater confidence that the risk of economic growth has subsided.” At present, the market expects that the non-farm payrolls population adjusted for August will increase by 165,000, compared with the previous value of 114,000.
Technology stocks have been a major driver behind the S&P 500’s surge this year. In recent weeks, with concerns over lofty valuations of tech stocks, investors have shifted their focus to other sectors.
Following the historic battle against inflation, traders are now awaiting to see just how aggressively the Federal Reserve will cut interest rates later this month.
Data indicates that around 16% of the S&P 500 components are currently at 52-week highs. Back at the start of the year, this figure stood at just 4%. Since the significant drop in August, robust data has fueled a market recovery. Wilson anticipates that this week’s non-farm payrolls report will continue this trend. However, if the data comes in weaker than expected and the unemployment rate rises, the stock market could face pressure similar to what it experienced last month.
Wilson reiterated his preference for defensive stocks while cautioning investors to steer clear of small-cap stocks or “other inexpensive cyclical stocks that have underperformed over the past few years, mainly due to slowing economic growth.”
He had warned back in early July that traders should brace for a major market correction in U.S. stocks due to uncertainties surrounding the U.S. election, corporate earnings, and Federal Reserve policy. Less than a month later, the S&P 500 dropped 8.5% from its peak.
But this may not necessarily prove Wilson’s prowess. As one of Wall Street’s most pessimistic strategists, Wilson remained bearish throughout last year, even as the S&P 500 rallied 24%.
Wilson noted that for the U.S. stock market, the “ideal scenario” would involve a series of 25 basis point interest rate cuts by the Federal Reserve accompanied by stable economic growth. “But if the rate cuts are larger and come along with a weakening labor market, then the stock market might not respond positively.”
Wilson cautioned that one challenge for investors is that the U.S. stock market has already priced in expectations of a soft landing, which limits the overall upside potential of the index. He added that if data once again sparks concerns about a hard landing, it could trigger a “significant” decline.
The strategist’s overall target is for the S&P 500 to reach 5,400 by mid-2025, implying a roughly 4% decline from its current level.
September is typically one of the most volatile months for the market. Turmoil could intensify in the lead-up to and aftermath of the contentious presidential election, which is already full of surprises. Others remain concerned about the dominant market share held by tech giants and also worry that the hype surrounding artificial intelligence (AI) has gone overboard.
Reproduction Notes：InvestFancy » Lagging Stocks in the US Stock Market are expected to catch up