US equities are tracking the same path they did in 2019, which was one of the best years for the S&P 500 over the past decade as it handed investors a 29% return, according to Morgan Stanley’s staunch bear, Michael Wilson.
“The data we have today suggests to us that we are in a policy-driven, late-cycle rally,” Wilson wrote in a note. The latest example of such a period occurred in 2019 when the Federal Reserve paused and then cut rates and its balance sheet expanded toward the end of the year.
“These developments fostered a robust rally in equities that was driven almost exclusively by multiple and not earnings, as has been the case this year,” Wilson said.
The S&P 500 has advanced 19% this year, almost the same return it posted in 2019 over the same period as it rebounded from a decline the previous year. In 2023, investors have looked past an earnings recession as the US economy holds up better than expected, bolstering hopes for a soft landing.
“The 2019 analogy, in and of itself, suggests more index level upside from here, though we’d note that the Fed was already cutting rates for a good portion of 2019, and the market multiple is already close to 1 turn higher than where it peaked during that period,” Wilson said.
