A Morgan Stanley strategist thinks equities can surge more than 14 percent from their current levels despite their recent sharp pullback.
Michael Wilson, equity strategist at Morgan Stanley, said in a note Monday the S&P 500 could reach his ‘bull case’ target of 3,000 “by the middle of the year as investors bid up P/Es toward 18.5x on one last surge of euphoria before settling back down by year end.”
Wilson’s bull target is about 14.5 percent above where the S&P 500 closed on Friday. The broad index finished Friday’s session at 2,619.55.
The Dow Jones industrial average and S&P 500 both pulled back 5.2 percent last week, notching their worst weekly declines since January 2016. The Nasdaq composite, meanwhile, dropped 5.1 percent, marking its biggest one-week pullback since February 2016. The indexes also dipped into correction territory.
Some traders attributed the recent decline to inflation fears pushing interest rates higher and sharp moves in obscure volatility funds that use leverage.
“We believe this vol shock/liquidity event has likely taken valuations too low at this point but realize such events have a way of overshooting to the downside which is why we have advocated patience in buying this dip,” Wilson said.
However, Wilson warned clients that volatility was unlikely to return to the subdued levels seen in 2017.