More experts predict a storm in the US stock market

September 10, 2021 – 7:37 p.m.

Strategists from almost every major Wall Street bank have this week released a message of nervousness about the U.S. stock market.

The latest opinions come from Deutsche Bank AG and Goldman Sachs Group Inc, and echo previous pronouncements by Morgan Stanley, Citigroup Inc and Bank of America Corp.

More economic information from the Spectator

While investment banks tend to be measured in their outlook, there are commonalities that underpin their projections that the market is vulnerable. Valuations are at historic highs, stocks have been rising non-stop for seven months, the economy looks weak and the Federal Reserve is preparing to cut the stimulus.

“The risk of the correction being harsh is growing,” wrote Deutsche Bank equity strategists, including Binky Chadha. “Valuation corrections do not always require market setbacks, but they do limit returns.”

Part of the market tension is already being felt. The S&P 500 has fallen close to 1% in the last three sessions, although it has shot up 100% since the March 2020 lows.

Below is a summary of this week’s comments:

Binky Chadha, Deutsche Bank equity strategist

“Market-level stock valuations are historically extreme in almost every metric.” Past and future price-to-earnings ratios, as well as valuation metrics based on firm value and cash flow, are all in the 90th percentiles, he noted.

James Congdon, co-director of the research division of Canaccord Genuity Quest

“Global stock markets may be entering a period of turmoil.” He added that investors should favor stronger companies with robust cash flows over weaker and more speculative ones.

Dominic Wilson, Goldman Sachs economic research strategist

“While the overall outlook for the U.S. market is strong in our core case, we believe maximum cyclical optimism in the U.S. may have lagged behind.” Strategists said the hedges look attractive, especially in a shorter time horizon.

Andrew Sheets, Morgan Stanley’s cross-asset strategist

“We will have a period in which data will be weak in September, at a time when there is a greater risk of the delta variant and the reopening of schools.” The bank on Tuesday cut US shares to underweight and global stocks to equal weight.

For more information on the subject; U.S. Securities and Exchange Commission News

Savita Subramanian, director of quantitative strategy and US equities at Bank of America

“The S&P 500 has essentially become a zero-coupon bond at 36,” he said. “If you look at the duration of the market today, it’s basically longer than it has ever been. That’s what scares me.”

The threat is that “any upward movement in the cost of capital through interest rates, credit spreads, stock risk premiums, will basically be a huge blow to the market in relationship with the sensitivity we’ve seen in the past, ”he noted.