Morgan Stanley’s Andrew Slimmon warns that the U.S. stock market is in for a challenging year ahead, despite the anticipated interest rate cuts from the Federal Reserve. As the senior portfolio manager for U.S. equities at Morgan Stanley Investment Management, Slimmon believes that Fed Chair Jerome Powell should exercise caution and be “patient” with rate cuts.
Slimmon expresses concern that any deviation from this stance could indicate a faster-than-expected decline in the economy. He acknowledges that inflation is currently running below the Fed’s benchmark interest rate, but emphasizes the need to ensure the true secular trend in inflation is lower.
Powell’s monetary policy press conference on Wednesday will shed further light on the Fed’s decision. For now, stocks are performing well, with the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all experiencing gains. The S&P 500 index has already risen 3.3% this year, following its upward trajectory throughout 2023.
Despite this positive start, Slimmon suggests that sustaining this momentum might prove challenging for U.S. stocks in 2024 due to the market’s substantial growth last year. He remains optimistic, however, believing that earnings will play a significant role in pushing the market higher this year.
Currently, companies are releasing their fourth-quarter results, with some of the prominent tech giants scheduled to announce their earnings this week.
Magnificent Seven Tech Companies to Report Quarterly Earnings
Introduction
This week, we can expect the “Magnificent Seven” tech giants to release their quarterly earnings reports. These companies, Microsoft Corp. (MSFT), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Google parent Alphabet Inc. (GOOGL), and Facebook parent Meta Platforms Inc. (META), are known for their immense influence in the market.
Dominance in the Market
The stocks of the Magnificent Seven have been leading the market’s rise this year. According to FactSet data, notable gainers in 2024 include Microsoft, Alphabet, Amazon, Nvidia Corp. (NVDA), and Meta. However, two stocks from the group have experienced a decline. Apple’s shares have slipped slightly, while Tesla Inc.’s (TSLA) stock has significantly tumbled.
Cautious Outlook
Jeffrey Slimmon, a portfolio manager, expresses some caution regarding the Magnificent Seven stocks in the short term. The significant increase in their stock prices before earnings results poses a challenge for market conditions. However, Slimmon also believes that this concern is only temporary.
Broader Market Participation
While these seven companies led the surge of the S&P 500 index in 2023, Slimmon predicts a “broadening out” this year. He anticipates more companies participating in the market’s upward trajectory. Slimmon remains confident in the strength of the economy based on his conversations with various companies as a portfolio manager.
Potential Market Volatility
Slimmon acknowledges that the stock market may exhibit greater volatility compared to the previous year. The S&P 500 is now more expensive, and there is a shift in consensus towards a soft landing for the economy. Investors initially feared a recession in early 2023 but now anticipate rate cuts by the Federal Reserve. This vulnerability may lead to bearish worries and a potential pullback in U.S. equities if any signs of economic weakness arise.
The Right Strategy
Slimmon advises investors against waiting for a pullback and instead suggests keeping some cash available to seize opportunities during market declines. He believes that even with increased volatility, 2024 can still be a positive year for stocks.
Conclusion
As the Magnificent Seven tech companies prepare to release their quarterly earnings reports, all eyes are on their performance and its impact on the stock market. While caution and potential market volatility prevail, many industry experts maintain a positive outlook for equities in the coming year.
