Multiple factors suggest the stock market is currently bottoming, according to Dan Skelly, a managing director at Morgan Stanley.
Skelly says in a new CNBC interview that the US is currently experiencing a “productivity boom” that makes the risk/reward ratio for equities at current valuations look reasonably attractive.
“I don’t want to diminish the conflict going on by any means, but when you think about it, a year ago April we were talking about another big policy snafu, perceived to be at the time, and here we are not thinking about that as much. And so I think, look, at the end of the day, you’re going to go through these challenges day to day, week to week, but the underlying narrative in the US is one of innovation, one of technology, productivity, and one of pretty strong earnings.”
Skelly says Morgan Stanley doesn’t expect a major economic recession.
“Peak to trough, we had a 9% correction in the last several months, and the market, we think, has bottomed. Look, I’m not going to say we don’t retest, but it’s hard to understand what new information the market learns that’s that draconian, when we already know the motive is to have a ceasefire and to move on beyond all this.”
The S&P 500 is priced at 6,848.26 at time of writing and is up 3.73% in the past five days.
Skelly thinks the market probably troughed at 6,300.
“One of the other markers for that is that the VIX, the volatility index, has come off substantially off of that 30 level, and usually the volatility has to peak before markets can bottom.”
The VIX sits at 19.48 at time of writing.
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