Expect more volatility in the stock market as the June 1 debt ceiling deadline gets closer.
Some S&P 500 sectors perform relatively well leading up to resolutions, Morgan Stanley says.
Energy has been as a top performer before lawmakers reach a deal.
The risks of the stock market seeing the US slide into a debt default are uncomfortably high, but pockets of the market historically perform relatively well as lawmakers wrangle over the country’s borrowing limit, according to Morgan Stanley.
The 1996, 2011, and 2013 negotiations around the debt ceiling offer a partial comparison to the current situation, Morgan Stanley’s US equity strategy team led by Michael Wilson said in a note published Monday. A June 1 deadline to raise the $31 trillion limit is approaching, and the nonpartisan Congressional Budget Office sees the US running out of money to pay its bills in early June.
20 stocks expected to outperform the market, including one by 2,637%, according to a fintech company that tracks Wall Street’s top analysts’ price targets
The S&P 500 could see a steeper downturn for the remainder of the year.
This could mean a micro-driven market of stock pickers will outperform the broad market.
Below is a list of 20 stocks with high upside compiled by TipRanks, a data-driven financial company.
US stocks may have an ugly year ahead, says popular consensus.
Morgan Stanley’s chief US equity strategist is forecasting a 20% plunge for the S&P 500. Jeremy Grantham, the legendary co-founder of GMO, told CNN the index could plunge even steeper, to at least 27% or 3,000 points. In a worst-case scenario, he believes the index will drop by 50% to around 2,000 points before it hits a bottom next year.
This scenario would make stock picking crucial for any investor whose goal is to beat the market or deliver positive returns this year. In a February 21 note, Goldman Sachs strategists said they expect a micro-driven market, where stock pickers chasing company-specific performance will outperform the broad market.
If stock picking isn’t your strength, using the consensus views of analysts to find potential winners could be a way forward. One source for them is TipRanks, a fintech company that uses artificial intelligence and other techniques to compile and analyze data, including tools for stock-market research.
Below is a list of 20 stocks on the platform that are considered “strong buy” among top analysts, or those TipRanks has assigned four or five-star ratings. TipRanks’ analyst rating system is based on three main categories which include an analyst’s average returns, profits or losses on recommendations, and the volume of corrections and transactions they make. The price targets included with each stock are also based on top analysts’ consensus.
These stocks also have a so-called TipRanks smart score of 10 out of 10, which is a purely data-driven ranking system that considers eight factors including Wall Street analyst ratings, corporate insider transactions, financial blogger opinions, individual investor sentiment, hedge fund manager activity, news sentiment, technicals, and fundamentals. The score helps predict a stock’s performance relative to the market. Scores above eight are expected to outperform.
“Most [clients] believe it will ultimately get resolved but not without some near-term volatility,” Wilson wrote.
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Diving into S&P 500, the firm found the energy and utilities sectors were the top relative performers heading into a resolution. The energy group in three and two months before deals were reached posted returns of 4% and 6%, respectively, returning 3% in the month before a deal.
In that same time frame, utilities, a defensive sector, posted returns of 3% each, followed by 2% one month before lawmakers cemented an agreement.
After Washington pushes past a stalemate, the tech, healthcare, staples, and dividend growth groups perform well. Tech’s return was 13% one month following a deal, while healthcare returned 7% and staples returned 3%.
“Interestingly, real assets saw a distinct shift in performance pre- and post-resolution,” said Wilson. The team found energy and commodities — stripping out gold — had positive absolute returns into the debt-ceiling debates then swung into negative territory after lawmakers settled their differences.
For energy, negative returns were 3% and 6% in the first and second months post-resolutions.
Stocks overall sold off both into resolutions and lost another 12% in the two months following deals, Morgan Stanley said. “All this is to say that markets were flat on average near debt ceiling resolutions, but in reality, the comps saw some near-term volatility followed by a continuation of the previous trend,” said Wilson.
House Speaker Kevin McCarthy on Monday said he’s “far apart” from President Joe Biden in reaching a deal, under which Republicans are seeking spending cuts.
