Last week's notable market rebound should be viewed as more of a bear market rally rather than the start of a sustained uptrend, particularly in light of weaker earnings revisions and macroeconomic data, according to analysts at Morgan Stanley.rose as much as 5.9% last week to mark its best week of the year. However, analysts fail to get excited and attribute the jump to the decline in long-term Treasury yields.
Both technical and fundamental support for stock gains seem to be lacking, with significant deterioration observed in earnings revisions breadth and performance breadth over the past two months. “Until those factors reverse in a durable manner, we find it difficult to get more excited about a year end rally at the index level. Instead, we maintain our recommendation for a barbell of defensive growth and late cycle cyclicals.”
Although there has been a 7.5% earnings surprise for the S&P 500, surpassing the 4.5% historical average due to resilient profit margins, the surprise in sales has hit its lowest point since 2019, the analysts highlighted.