Morgan Stanley Unleashes Doom: “Both The Fed, And The Trade War Puts Have Now Expired”

Monday, August 19, 2019
By Paul Martin

by Tyler Durden
ZeroHedge.com
Mon, 08/19/2019

At the end of June we reported a startling finding by Goldman Sachs: while the S&P 500 rose 7% from its trough on June 3 through the end of the month, valuation expansion accounted for 90% of the rally in response to the Fed’s becoming “impatient” and signaling an easing cycle has begun.

What about for the full 2019? The answer comes today courtesy of Morgan Stanley’s bearish equity strategist, Michael Wilson who writes that since 2019 has been a game of deteriorating fundamentals versus a pivoting Fed and hope for a resolution to the US-China trade uncertainties, a whopping 94% of the year to date performance in the S&P 500 has been driven by rising valuations while the other 6 percent is due to rising forward 12 month EPS. Wilson, always the bearer of even worse news, then adds that based on his own EPS forecasts – which are far below those of consensus – “well over 100 percent of the move in the S&P 500 has come from rising valuations.”

This means that any stock market upside in 2019 is entirely due to the Fed’s dovish pivot coming at a time of declining earnings, and makes Trump’s bizarre feud with the Fed even more perplexing: had it not been for Powell, Trump would be nursing the first bear market in a decade right now.

Of course, this being a Morgan Stanley report, there is a punchline, and it’s hardly bullish. In this case, it is that as Wilson writes, “the Fed meeting on July 31st was a sell the news event because it had been so telegraphed, and priced. The fact that the Fed arguably disappointed with only a 25bps cut means they are now behind the curve; until they get in front of it, multiples are unlikely to expand again.”

In short, according to Wilson, “the Fed put expired on July 31st.”

The Rest…HERE

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