- Justin Briggs
- Morgan Stanley’s chief US equity strategist says it will be far harder to predict the market’s moves in 2019 than last year.
- He correctly called the stock market’s direction last year amid an injection of volatility. He likened that feat to the iconic 1993 commercial featuring the basketball players Michael Jordan and Larry Bird, attempting to sink the ball in a series of difficult shots.
- He said in a note out Monday that he expects the market to enter into a challenging time, and would recommend investors consider “lightening up” if stocks rally.
“Off the expressway, over the river, off the billboard, through the window, off the wall, nothing but net.”
That’s how Michael Jordan concluded the iconic 1993 McDonald’s commercial, “The Showdown,” alongside fellow basketball legend Larry Bird, competing for a Big Mac and Fresh fries.
The basketball’s wild, roundabout journey to reach the hoop in that commercial was just how Morgan Stanley’s top US market-watcher, Michael Wilson, described getting the stock market right in the last year.
After all, a confluence of factors like US-China trade uncertainty, global economic slowdown fears, and concerns around the Federal Reserve’s interest-rate hiking path have altogether injected volatility into markets around the world for months.
“Calling the market’s direction this past year reminds us of one of the greatest commercials of all time – 1993’s The Showdown – where Michael Jordan and Larry Bird compete to make a series of successively harder shots through a basketball hoop,” Wilson, the firm’s chief US equity strategist and chief investment officer, told clients in a report on Monday. “Their final shot attempt is ‘off the expressway, over the river, off the billboard, through the window, off the wall, nothing but net.
“After making a series of accurate calls in 2018, we realize it’s only going to get harder in 2019. As such, we aren’t calling ‘swish’ at this point and we’ll be happy if we can hit the rim.”
Wilson believes the market is entering into a period of time marked by “negative news flow on earnings and the economy,” and would recommend investors consider “lightening up” on positions around 2,600 to 2,650 on the S&P 500. That’s up 0.7% and 2.6% from current levels.
Corporate earnings season in the US kicked off Monday with Citigroup releasing its fourth-quarter results before the bell. While the bank fell short of analysts’ revenue expectations and posted a 21% decline from fixed-income, currencies, and commodities trading, the bank beat in earnings. The results ushered in what is likely to be a volatile earnings season, with Wall Street expecting earnings growth to slow.
And while Wilson and his team correctly forecast the US stock market’s direction last year, the firm started 2018 off with a 2,750 base-case year-end S&P 500 target; the benchmark index closed at 2,506.85, down 6% for the year.
Morgan Stanley’s base case remains the same for the end of this year, implying a rise of 6.5% from current levels. In the meantime, Wilson recommends buying stocks “anytime we get near our bear case of 2,400.”
He added: “So, if we actually suffer the re-test we are expecting, we would be buyers of that almost regardless of what is going on, assuming it happens on less momentum and better breadth.”