After the U.S-China trade war rattled the Markets, a succeeding rally has cut the week-to-date loss for the S&P 500 Index (SPX) to just 0.2%, as of May 16,2019.
However, Mike Wilson, chief U.S. equity strategist at Morgan Stanley, believes that more trouble lies ahead. Could it mean that there will be a stock market crash in 2019?
Below are 4 signs that more trouble lies ahead in the market:
Bullish Belief is Alarmingly High
According to Investopedia, increased bullish sentiment, remaining at 87th percentile since 2005, makes limited room for sentiment-driven benefits.
Investor sentiment is a traditional contrarian sign, seen as an unfavorable indicator whenever it is bullish, and a good sign when it is brutal.
The Yield Curve Directs To Incessant Stock Market Volatility Ahead
The report elaborates that volatility may not die down as swiftly as some assume even though there is an appropriate de-escalation of these trade deal threats.
Moreover, it is emphasized that while it is commonly known that a flattening yield curve is a primary symbol for the economic cycle, it is also believed that an excellent leading relationship between the yield curve and the VIX.
The Risk Of Recession Drastically Increased
The report warns that there are several indicators that the the threat of an upcoming recession is increasing in the next 12 months.
As a matter of fact, the U.S Cycle Indicator developed by Morgan Stanley’s Cross Asset Research team has reached the downturn phase which typically lead to economic recession.
Income Progress Is More Unpredictable Than Most Analysts Think
According to Morgan Stanley’s earnings growth primary indicator, that the S&P 500 earnings over the next 12 months will be about 8% lower than the estimate of the consensus.
Wilson’s team anticipates the ratio to trade within this range for the next several years, with two outcomes exemplifying bearish and bullish circumstances. The mark closed at 2,876.32 last May 16, signifying 16.6% drawback and 4.3% favorable to Morgan Stanley’s prediction.