Such optimism has become more common among investors since mid-June, after corporate earnings were much better than feared and data showed a slight cooling in runaway inflation. The S&P 500 ended Friday with its fourth straight week of gains, its longest weekly winning streak since November.
But Morgan Stanley strategist Michael J. Wilson, one the most vocal and staunch bears on U.S. stocks, says the rebound is now overdone, citing the risks posed by the economy, tighter monetary policy and the outlook for corporate profits.
The macro, policy and earnings set-up is much less favorable for equities today, he wrote in a note, adding that disappointing earnings in the next few months could spark the next leg lower in stocks. The risk/reward is unattractive, and this bear market remains incomplete.
Stocks also face another hurdle from slowing corporate buybacks after a record spree so far this year. Although buyback authorizations have jumped 18% to $856 billion in 2022, actual spending on stock repurchases sank 21% in the second quarter compared with the first, Goldman Sachs Group Inc. strategists wrote on August 12.
Still, the strategists led by David J. Kostin said a 1% excise tax, which goes into effect next year, creates a modest upside potential to buybacks in the rest of 2022.
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