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Morgan Stanley analyst issues a “mea culpa” after the S&P 500 rallies 17% in 2019

From Lu Wang:

(Bloomberg) -- Morgan Stanley’s Mike Wilson acknowledges he made the wrong call on the U.S. equity market this year. But that hasn’t dissuaded him from holding onto one of Wall Street’s most bearish forecasts.

With the S&P 500 Index at a record high after surging 17 percent this year, the firm’s chief U.S. equity strategist issued a mea culpa Monday, saying he underestimated a rally that’s been driven in large part by the Federal Reserve’s dovish tilt. Rather than revisiting the 2018 trough, as Wilson had predicted in January, stocks have kept marching higher.

It's the second time in seven months that Wilson has owned up to an overly pessimistic prediction. Last September, he said his early call for a correction amounted to the same thing as not being right. A few weeks later, stocks began a sell-off that ultimately took the S&P 500 to the brink of a bear market.

Still, Wilson is sticking by his longer-term outlook for the market. Even though this year's rebound has pushed the S&P 500 about 7 percent above his year-end target of 2,750, fundamentals just don't support the market's current levels, according to his analysis.

"We have to acknowledge our error and decide if the market is telling us something and if we should raise our targets," Wilson wrote. "The short answer is no because valuations are full and we still see downside risk to the consensus earnings estimates over the next 12 months."

At 17 times forecast earnings, the S&P 500 is trading at a multiple that's 14 percent higher than its 10-year average, data compiled by Bloomberg show. While first-quarter earnings have come in better than expected, analysts have continued to lower estimates for coming quarters. The expected rate of growth for the current quarter just turned negative.

While the size of predicted declines is small, any deterioration would raise the odds for an earnings recession, a scenario that Wilson predicts for this year. Despite the unfavorable profit backdrop, speculation that the Federal Reserve would lower interest rates and optimism that a China-U.S. trade agreement will be reached have continued to lift the market.

The S&P 500 could rise to 3,000, about 2 percent above its current level, on the announcement of a trade deal, but that should be seen as a sell signal, according to the strategist. Despite growing talk about a market melt-up, investors shouldn't chase the rally, he said.

Morgan Stanley defines a market melt-up as a period when the S&P 500's price-to-earnings ratio moves to high levels versus its recent past very quickly. The firm identified six instances over the past three decades that fit the criteria and found they shared something in common: they're either accompanied by monetary or fiscal stimulus.

While the Fed has tilted more market friendly, Wilson suggested the current environment lacks other elements that would embolden a melt-up, such as a weaker dollar, better growth outlook and a potential uptick in consumer confidence. In particular, companies such as Amazon.com Inc. and Facebook Inc. have cut capital spending while small-caps and cyclical shares have trailed the market, all evidence pointing to subdued growth prospects.

"The positive spin is that maybe last week's spike is like the spike in early January 2018 and we still have another spike to look forward to as people decide they have to pile in," Wilson wrote. "Use at your own peril, but our advice is to not bet on it at this stage because the fundamental conditions are different from past periods that exhibited such exuberance."


The SPDR S&P 500 ETF Trust (SPY) fell $0.26 (-0.09%) in after-hours trading Monday. Year-to-date, SPY has gained 10.56%. SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 154 ETFs in the Large Cap Blend ETFs category.
This article is brought to you courtesy of Yahoo! Finance .
NYSE:SPY April 29, 2019 5:23pm

U.S. airlines hit with systemwide ticketing outage

american delta united airlines planes
From Emma Newburger:
NYSE:JETS April 29, 2019 5:16pm

The financial sector is the best performer in April

stock ticker board
From Lizzy Gurdus: The banks are back.
NYSE:XLF April 29, 2019 5:13pm

Jim Paulsen says the S&P 500 could rise another 15%

From Matthew J. Belvedere: Wall Street veteran Jim Paulsen believes stocks could continue to surge well past their recent recovery to the all-time highs that were last seen before the late-2018 market collapse.
NYSE:SPY April 29, 2019 2:59pm

Gold prices slide, traders take profits after 3-day run-up

gold bar closeup
From Reuters: Gold fell on Monday as equities gained after data showed U.S. consumer spending increased by the most in more than 9-1/2 years last month, with the markets awaiting the U.S. Federal Reserve's meeting for guidance on interest rates.
NYSE:GLD April 29, 2019 2:52pm

S&P 500 reaches a new intraday high

business graphic
From Emily McCormick:

Stocks rose Monday morning at the start of week packed with economic data releases and several major company quarterly reports.

INDEXSP:.INX April 29, 2019 2:47pm

Morningstar says that China’s long-term GDP growth will fall between 3.25% and 3.5%

money loss arrows
From Kenneth Rapoza:

A new report by Morningstar has China's long-term GDP growth falling between 3.25% and 3.5%. If so, that's nearly half current growth rates of 6.3%, based on IMF numbers.

NYSE:FXI April 26, 2019 8:00pm

The S&P 500 and Nasdaq close at record highs

s&p 500
From Sue Chang and Chris Matthews: Stocks closed higher Friday, with the S&P 500 and the Nasdaq finishing at records, as stronger-than-expected first-quarter U.S. gross domestic product growth offset the negative impact of disappointing earnings.
NYSE:SPY April 26, 2019 8:00pm

Why does Goldman Sachs believes gold will outperform silver?

gold bar closeup
From Allen Sykora: (Kitco News) - Goldman Sachs favors a pair of spread trades in the precious-metals complex, looking for gold to outshine silver and palladium to outperform platinum.
NYSE:GLD April 26, 2019 1:40pm

Goldman Sachs remains bullish on emerging markets in Q2

goldman sachs stocks
From Joanna Ossinger: Emerging markets aren't going to face the headwinds they typically do in May and June this year as stronger U.S. growth helps the global economy, according to Goldman Sachs Group Inc.
ETF BASIC NEWS April 26, 2019 1:36pm

After a 9% gain in 2019, where are coal prices headed?

clean energy stocks
From Todd Shriber: Declining costs for alternative energy coupled with countries and states pushing for increased use of clean energy sources are among the factors weighing on the global coal industry.
NYSE:KOL April 26, 2019 1:11pm

After a relatively weak month for marijuana stocks, where are they headed?

profit loss
From Todd Shriber: Declining costs for alternative energy coupled with countries and states pushing for increased use of clean energy sources are among the factors weighing on the global coal industry.
NYSE:MJ April 26, 2019 1:08pm

Growers are feeling the pain of the lowest coffee prices seen in years

coffee prices
From Gaby Del Valle:

American coffee consumption is approaching record highs -- as is the cost of a cup of coffee -- but the cost of coffee beans is plummeting. A pound of wholesale beans now costs less than $1 on New York's Intercontinental Exchange, the lowest price per pound in more than a decade, the Wall Street Journal reports.

NYSE:JO April 25, 2019 8:00pm

The iShares Russell 2000 Value ETF (IWN) Eclipses 200-Day Moving Average

2019 Stocks increase
From ETF Channel: In trading on Wednesday, shares of the iShares Russell 2000 Value ETF (Symbol: IWN) crossed above their 200 day moving average of $124.60, changing hands as high as $124.73 per share. iShares Russell 2000 Value shares are currently trading up about 0.5% on the day. The chart below shows the one year performance of IWN shares, versus its 200 day moving average:
NYSE:IWN April 25, 2019 1:38pm

Inflation-adjusted, is Silver cheaper or more expensive than it was a century ago?

long and stacked silver bars
From Mike Hammer: Since we've already given our current view on silver, how about we let someone else give you their view? Among technicians, there are short, medium, and long-term perspectives as well as all the different methods of analyzing data. Here we tend to favor simpler methods that give results without too much mind-bending (so we haven't quite fully embraced Elliot Waves, for one example).
NYSE:SLV April 25, 2019 12:45pm

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