The drumbeat of negative sellside macro research reports continued over the weekend, when following virtually every other investment bank, Morgan Stanly was the latest to share “four charts you can’t miss”, key of which perhaps was the well-known fishhooks chart showing sliding forward EPS estimate every year (with 2014, 2015 and 2016 earnings all now virtually identical), as well as the observation that PE ratios are far higher currently than where they should be based on real TSY yields…
… but what we found most interesting was the bank’s forecast matrix. While MS has a year end “base case” S&P500 target of 2,050 – about 50 points lower from where the market will open – it also present its bull and bear case, which are 2,200 and 1,525 respectively, or 5% of potential upside vs 27% of potential downside.
In any other investing climate this unattractive Upside/Downside would be sufficient to pull money from the market, however in this day and age, bad news for the market is implicitly good news for the market as it means even more doubling (tripling, quadrupling) down by central banks to keep it propped up. It may also explain why the S&P is set to open up well above 2,100 on the day after the US economy reported its worst jobs number since 2010.
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