By Joyce Yu
U.S. stocks retreat after early gains fuelled by Morgan Stanley’s record first-quarter numbers. Some investors think the nine-year bull market might be on its last legs and has already peaked or will later this year.
“The bulls have been silenced but not defeated,” Michael Hartnett, Bank of America Merrill Lynch’s chief investment strategist, wrote to clients. Having a more positive view about the market, he noted that while cash balances have risen, 39% of investors think stocks won’t peak until 2019 or later.
The number one worry among money managers surveyed is a trade war which will derail the global economy and dash the confidence of businesses and consumers. Just 5% of investors polled by Bank of America expect faster global growth over the next 12 months, down from about 40% a few months ago.
“I believe it is erroneous to assume that there will be a dialing down of trade tensions,” Kristina Hooper, chief global market strategist at Invesco, wrote in recent blog post. “Protectionism remains the big risk markets need to be concerned about.”
Rally in the European markets also lost momentum in early sessions while most Asian markets registered strong gains overnight after the People’s Bank of China cut the proportion of cash that commercial banks are required to hold at the central bank by 1 percentage point late on Tuesday.
Long-term bull Jeremy Siegel also pointed out strong earnings will not be able to push stocks back into record territory. The Wharton finance professor who correctly predicted 2017’s historic rally, said in an interview with CNBC, “It’s going to be a flat to slightly upward tilting year as good earnings collide with what I think will be higher interest rates both by the Fed and in the Treasury market.” “This market is going to struggle this year.” In addition, Federal Reserve’s plan to shrink billions of dollars of Treasury holdings will put pressure on the market.
Last year, the Dow surged 25%. But Siegel thinks a 10 to 15% gain this year and maybe next year, is not going to be realized. His best-case scenario is a no more than 10% gain in the stocks market.
With just under 10% of S&P 500 companies reporting first quarter earnings, 71% of the reports have beat estimates. As of Monday’s close, actual reported earnings per share are up 33% versus first quarter 2017.
