When Morgan Stanley’s Adam Parker had a notable change in heart earlier in the year when he turned from a raging bull to a muted bear, it unleashed a series of odd letters to MS clients such as this one from April where “In Bizarre, Schizophrenic Note Morgan Stanley Compares Rally Chasers To “Cockroaches“, followed by an angry noted aimed at “Fake Contrarians Who “Only Care About Price“, culminating with a letter in July in which he feared becoming the “counter-indicating idiot.”
Well, several months later, with the central banks refusing to allow his bearish narrative to manifest itself, this morning Parker flip-flopped again, and once more threw in the towel, this time reverting back to his old bullish ways, when overnight he released a note titled that “We Think the US Stock Market Is Going Higher“, something he didn’t think for most of 2016.
The justification of his racent change of heart was the same one used by so many other analysts who have zero fundamental legs to stand on: the Fed Model, or low bond yields resulting in high equity valuations. This is what he said:
We are raising our 12-month price targets for the S&P 500 – base case from 2200 to 2300, bear case from 1600 to 1800, and our bull case from 2400 to 2500. Our bull-bear skew is balanced, and our base case upside is now mid-single-digit, consistent with our continued optimistic outlook. While we have argued many times that we think forecasting the market-level price-to-earnings ratio is difficult, our best guess is that growth and interest rates ultimately matter in the long term. In fact, we have shown that historically, there was a relationship between real yields and price-to-earnings ratios for the markets Exhibit 1).
This post was published at Zero Hedge on Sep 6, 2016.