By The market is ripe for gains going into the end of the year, but the rally could be short-lived, Morgan Stanley’s Mike Wilson says.
Wilson says the S&P 500 could surge as much as 5% this year as election-related uncertainty fades and markets rally through the rest of 2024.
“I think we could see 6,000, potentially, in some sort of a clearing event where there’s not a lot of consternation and people feel good about things,” Wilson said in a Monday interview with Bloomberg, adding, “We’re into the FOMO season, and people need to perform in the next two months.”
He added that he could see upwards of 6,100, implying almost 5% upside from the benchmark’s closing level of 5,782 on Tuesday.
He says the index likely can’t climb higher than that, though, since valuations are currently almost 22 times earnings, and since growth is unlikely to pick up for multiples to expand further into the next year.
“I think it’s really hard for us to get past 6,100 in any scenario, because then you’re just so stretched on valuation. And I don’t see growth accelerating in a kind of way that would justify even higher multiples for 2025,” he said.
Looking ahead to 2025, there will need to be some level of fiscal consolidation no matter which candidate wins the election, he says. That will bring more uncertainty, and could send the market on a rollercoaster ride, he says.
“I could see a blowoff move of some kind, post-election, a clearing event, but then reality sets in that we’re going to have to have some kind of fiscal consolidation next year no matter who wins, and in my view I think it has to happen. And that’s gonna create uncertainty again, and positioning kinda gets whipped around,” he said.
Wilson added the market needs a new theme beyond the Magnificent Seven and high-growth tech to get excited about and act as a catalyst for further growth.
Mega-cap tech earnings were mixed in the latest earnings season, with concerns growing about high spending on artificial intelligence.
“We need something to get excited about. We’re kinda lacking it. But something will happen. In other words, the market will find a new shiny toy, and it will move to that shiny toy,” he said.
The S&P 500 is up by more than 21% in 2024, with the bull rally turning two years old last month.
