Economic News

Morgan Stanley Warns Bull Market is Coming to a Close

Analysts at Morgan Stanley are taking a glum look at the current market, releasing a report prognosticating that the end of a long bull market is near. As CNBC reports, the firm asserts that investors are ignoring risks that are likely to drive the market down. Moreover they suggest that, while recent economic stimulus acts like the GOP-backed tax cut bill can have a positive affect on stocks, such efforts are likely to only result in short-term gains. The report even goes as far as to call the current market “happy hour in America.”

Beyond the tax bill and other policies having only short-lived effects, Morgan Stanley also suggests that these benefits have also already been priced into the current market. The research paper states, “The feelgood aspects of said policy appear at or nearly in the price of US markets, whereas the downsides are less accounted for. While there’s a fair amount of debate about how much this fiscal expansion extended the economic cycle, for markets our analysis suggests we’re closer to the end of the day than the beginning.” As a result they expect the bull market to peak later this year.

If Morgan Stanley’s analysis is correct, it would mean the end of a rather impressive run. Since the election of President Donald Trump in November of 2016, the S&P 500 has seen a 20% rise while the Dow Jones Industrial Average is holding onto a 40% gain. However, despite the tax bill’s passage as well as the $1.3 billion omnibus spending bill the President (begrudgingly) signed, the report suggests “we already saw peak valuations before the tax bill was enacted.”

Adding to the negative outlook, the Morgan Stanley reports goes on to predict that next recession could be worse than many expect. Part of their reasoning involves the growing national debt. The report states, “Based on analysis of similar supply-side policies historically, we find that there could be a reasonable boost from growth-motivated stimulus, but it’s not long-lasting; it’s worse for policies with larger deficit implications, and the upside may have been frontloaded.”

Anyone who’s been watching the stock market in recent weeks knows that volatility has become a major factor. Many of these ups and downs have been attributed to ongoing trade war fears, with stocks swinging one way or the other based on news and rhetoric. However, if Morgan Stanley’s report proves true, it seems these temporary loses could be just the beginning as “happy hour” ends and the deficit-induced hangover begins.

Other Articles by Jonathan Dyer