Morgan Stanley strategists are optimistic about the U.S. election

Investors should remain optimistic about stocks ahead of this week’s U.S. midterm elections, said Michael Wilson of Morgan Stanley, a top-ranked strategist who correctly predicted a decline in stocks this year.

Opinion polls indicating a Republican victory in at least one chamber of Congress are a potential catalyst for lower bond yields and higher stock prices, which would be enough to continue the bear market rally, Wilson wrote in a note Monday.

Americans head to the polls Tuesday to determine control of both houses of Congress, governorships in 36 states and countless other local elections and ballot initiatives.

Last week was important for markets as U.S. consumer price index data on Thursday will show whether the Federal Reserve’s rate hike is holding inflation in check. The central bank raised rates by 75 basis points for the fourth straight week last week, and Chairman Jerome Powell said the cost of borrowing would be higher than previously expected. This started the recent rally as the S&P 500 index had its worst week since September.

As you read the updated list of top brokers and choose your broker in 2022, remember that it is important to record your trades in a diary. It should include:

  • Transaction dates;

  • The sums of purchase;

  • The buy/sell prices;

  • The reasons the deal was made;

  • The latter is very important.

After some time, you can analyze the records, the results of the trades and understand what the mistakes were. It helps to learn from your own mistakes. All professionals use records in their trading.

Waiting for short-term volatility

Wilson and his team said they should expect short-term volatility ahead of the medium-term results, especially given concerns about the release of consumer price data. Nevertheless, they maintain a tactically optimistic stance on stocks, saying that rate volatility could fall further.

Strategists at JPMorgan Chase & Co. also have an optimistic outlook for equities amid a potential peak in bond yields, “very optimistic” sentiment and positioning, and good seasonal factors, they wrote in a note Monday.

Strategists are using 3,625 to 3,650 as a stop-loss level for the S&P 500. They also said clients should consider exiting bullish trades if 10-year Treasury yields hit new highs of 4.35%, which would greatly reduce the chances of the S & P 500 reaching 3,950.

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