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Still, he said market bears are going to be disappointed because a steep immediate drop in the broad S&P 500 index is unlikely.US stocks are stuck in neutral, and Mike Wilson, Morgan Stanley's chief US equity strategist, is telling investors the won't get unstuck soon., as S&P 500 profits are essentially flat this year while smaller companies are reporting a decline. And he says there's reason to expect further weakness, since profit estimates will soon fall as well.
That's because the S&P 500 itself has turned into a defensive asset during times of turmoil, as it attracts a lot of passive investment that supports prices. He also notes that its transparency, quality, and liquidity are all high relative to other indexes around the world. In his view, Wall Street struggles to predict corporate earnings that are more than a year away and just assumes that whatever trend is current will continue. The result, he says, is that the stock market is forecasting decent growth even though results are getting worse.
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