05.08.202206:25 Forex Analysis & Reviews: Morgan Stanley advises against buying US stocks.

The primary US stock market indices – Dow Jones, NASDAQ, and S&P 500 – closed Thursday with no price changes. However, the indices remain close to their local highs and are in no rush to continue their "bearish" trend. We continue to view their recent expansion as paradoxical or, more simply, unreasonable. Recall that the Fed raised rates by 0.75 percentage points last week and has already initiated the QT program, which will reduce the US money supply and negatively impact investment volumes. Despite this, shares continue to rise, although not all analysts believe the "bearish" trend has ended.

For instance, Mike Wilson, the top stock market specialist at Morgan Stanley, recommends investors not to buy equities just now since he expects the market will resume tumbling. He draws attention to the fact that a rise in interest rates usually results in a market decline, which ceases when rates stop climbing. And from Wilson's perspective, rate increases cease when a recession begins. Moreover, yesterday, after its meeting, the Bank of England publicly announced that the British economy would experience a protracted recession in the second half of 2022. Recall that BA is likewise attempting to combat excessive inflation by increasing interest rates and yesterday announcing the sixth consecutive tightening of monetary policy. However, the British GDP exhibited a small expansion in the first and second quarters. Despite this, the British regulator asserts that a recession cannot be prevented and will commence anyway. Now let's compare it with international data. The Fed insists that the decline in GDP during the first two quarters is merely a temporary recession (does this remind you of anything in particular?). Jerome Powell referred to "temporary inflation" before, and a recession is inconceivable given the robust labor market and low unemployment rate. Nevertheless, the economy is already contracting, and it is improbable that growth will resume in the third and fourth quarters if the rate continues to rise. Thus, from our perspective, the American economy will continue to experience a recession.

In the meantime, the week will conclude with the release of figures on unemployment and the job market, upon which Powell based his optimistic outlook. The outlook is pretty optimistic. The nonfarm payroll is anticipated to add between 250 and 290 thousand jobs, and the unemployment rate is anticipated to remain unchanged at 3.6%. However, suppose the number of nonfarm payrolls falls short of expectations. In that case, it might harm dollar bulls and the US stock market, as it would indicate that Bank of England governor Andrew Bailey, who is not even attempting to dispute the recession, is correct. If the dollar can continue to withstand depressing statistics due to the ongoing cycle of rate hikes, then US stock indices should reflect weakening macroeconomic indicators.