Traders celebrating a record-setting day of shorting volatility.
Reuters / Charles Platiau
Stocks are on a “rollercoaster to nowhere,” Morgan Stanley Wealth Management’s Lisa Shalett said.
Investors are too impatient, Shalett said, and have no tolerance for pain.
That’s preventing stocks from bottoming out, pushing estimates for 2023 and 2024 lower, she warned.
The stock market is on a “rollercoaster to nowhere,” according to Morgan Stanley Wealth Management’s chief investment officer Lisa Shalett.
Shalett pointed to recent volatile swings in the market, when stocks initially plunged after September’s inflation report came in above-expectations, and then soared this week on upbeat earnings reports, fueling a three-day rally ahead of more third-quarter results and November’s Federal Reserve policy decision.
Positive earnings from tech giants like Netflix have continued to give stocks a boost – but that’s more reflective of the “extraordinary” impatience of investors, Shalett said, which is preventing the market from fully capitulating.
“I think we’re going to be on this rollercoaster to nowhere, where periodically we’re going to get these bear market rallies. As I said, this is a very impatient market, investors seemingly have no tolerance for pain, and so any sign that the wind may begin to blow their way, that gets a two- to three-day rally going,” she said in an interview with Bloomberg on Wednesday.
That’s partially because the market hasn’t felt the full impact of the Fed’s monetary tightening this year. The central bank just issued its third 75-point rate hike of the year in a scramble to bring down prices, but that has yet to show signs of slowing down the labor market, or corporate earnings, Shalett noted, which caused her to discount the recent rallies.
That’s been opposed by some Wall Street bulls, who think a bottom is already in and a new highs could be on the way. Fundstrat’s Tom Lee previously estimated that the S&P 500 was set to rally 37% by the end of the year, and fund flows show that most investors think the market bottom may have already been hit, according to Bank of America.
But, “it’s not yet a clearing event that sets up for a durable buyable bottom in this market,” Shalett argued.
“We still need to rebase numbers. And unfortunately, it doesn’t look like Q3 is going to be that capitulative event. That pushes 2023 and 2024 numbers down to where they ultimately will go.”