When the bear market lows will arrive: Morgan Stanley

Today’s nasty dip in the S&P/ASX 200 Index (ASX: XJO) reminds us that we are still in a tough time for ASX shares. A bear market is defined as a period following a 20% or more decline from an index’s last all-time high. It’s only over once markets have lifted 20% from a new low.

Now, the ASX 200 Index is not yet in a bear market. That doesn’t mean the 15.1% or so drop that the ASX 200 suffered between August 2021 and June 2022 wasn’t painful.

However, the flagship US S&P 500 Index (INDEXSP: .INX) is in a bear market right now. The S&P 500 last peaked in late December 2021. But by mid-June, it had fallen by roughly 23%. Since it’s only up around 6% or so from those lows, the S&P 500 is still in bear market territory.

Now, we Australians might claim a victory in that our index, the ASX 200, is not in a bear market, while the US S&P 500 is. But remember, the ASX 200 and the US markets are incredibly correlated. So this victory might well prove to be a pyrrhic one. Especially if the US markets experience another downturn.

Well, time to bring in what one expert investor reckons.

Morgan Stanley: The bear market isn’t over just yet

According to reporting in the Australian Financial Review (AFR) today, Morgan Stanley reckons that investors haven’t seen the worst of the US bear market just yet.

Morgan Stanley’s chief equity strategist Mike Wilson has predicted that “slowing economic growth will become a bigger concern for stocks than inflation or the Federal Reserve were in the first half of this year”.

As such, he sees the S&P 500 heading even lower over the rest of the year:

While acknowledging the poor performance in equities year-to-date, we do not think the bear market is over if our earnings forecasts are correct…

More specifically, we think the lows for this bear market will likely arrive in the fourth quarter with 3400 [points on the S&P 500 Index] the minimum downside and 3000 the low if a recession arrives (in line with our well-established base and bear case tactical views, respectively).

From there, we think prices will recover to our base (3900) or bear (3350) case June 2023 targets. In the very near term, if back-end rates fall, stocks may hold up or even rally until later this month when QT potentially increases and earnings estimates are likely revised lower.

So this is potentially terrible news for ASX shares if Wilson’s predictions come true. It’s hard to see the ASX 200 holding up if the S&P 500 does indeed sink to 4,400 points or lower (it’s currently just over 3,900 points).

Short-term pains, long-term gains?

But it’s also worth pointing out that these are just short-term predictions. No one, not even Warren Buffett, knows what is going to happen in the short term, whether that’s on the ASX 200 or the S&P 500.

And the best investors know that it’s the long term we should all be focusing on, not the short term. Let’s leave with some thoughts on that matter from our own chief investment officer Scott Phillips from last month:

The time to buy – to get real value – is when others aren’t. When the value of the business’ future profits is being ignored by investors. Times like, well, perhaps now…

If I’m right, and the future is bright for democratic capitalism (and for the ASX and many, perhaps most, of the companies listed on our bourse), then this is the time you want to be investing.

Not because I know it’s the bottom. Not because shares can’t fall further. But because if the future is brighter than the present, waiting would, on average, seem counterproductive, no?

The post When the bear market lows will arrive: Morgan Stanley appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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