The potential impact of the US Federal Reserve’s move on accelerating the reduction in asset purchases could turn into a much bigger headwind for stock markets than the Omicron Covid-19 strain, analysts say. Morgan Stanley.
The strategists of the big American bank would be “not so concerned about omicron as a major risk factor for stocks”, but warn that the harsh words of US Federal Reserve Chairman Jerome Powell about the possible accelerated decline in asset purchases would create headwinds elsewhere.
“Tapering is tightening for the markets and this will lead to lower valuations as is always the case at this stage in any recovery,” the analysts, led by Michael Wilson, the company’s chief US equities strategist and chief investment officer, told clients in a note viewed by Bloomberg.
Last week, Powell told a Senate panel that it was appropriate for the Fed to consider accelerating the reduction in asset purchases and that it was time to withdraw the word. “transient” when describing inflation.
Analysts see the S&P 500 trending lower and valuations falling, with the index’s forward price-to-earnings ratio expected to fall by around 12%. The decline would persist “As equity investors begin to demand much higher risk premiums in anticipation of significantly higher long-term interest rates. “
“The equity markets are resuming their downgrade process which started over nine months ago for many reasons”, the strategists wrote.
US stocks ended Monday’s session higher, cutting losses from last week, as investors went beyond concerns about the emergence and spread of the new variant of Covid-19, drawing their attention on key inflation data expected this week.
The Dow Jones Industrial Average closed almost 1.9% higher, while the S&P 500 rose 1.17% and the Nasdaq rose 0.93%.
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