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US stock market looks similar to March 2009, the onset of biggest bull rally: Morgan Stanley

The number of stocks trading above their 200-day moving average has climbed supported by "cyclical stocks" like small-caps, which is a telling sign that a recovery may be underway, said Mike Wilson of Morgan Stanley wrote in a note.

May 19, 2020 / 09:36 AM IST

The US stock market is moving in a similar trajectory as that in March 2009, the onset of the biggest bull run in history, following the Subprime Crisis of 2008, said Mike Wilson, head of US equities at Morgan Stanley.

"Markets are tracking the Great Financial Crisis period very closely in many ways," Wilson wrote in a note shared with Bloomberg, adding that counters have rebounded in a "similar pattern" to March 2009.

Also, the number of stocks trading above their 200-day moving average has climbed supported by "cyclical stocks" like small-capitalisation stocks, which is a telling sign that a recovery may be underway, he said.

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Further drawing parallels between the two periods, Wison noted that the current equity-risk premium or the expected earnings yield for the S&P 500 minus the 10-year Treasury yield is similar to that of March 2009. EPR gives an estimate of how much extra return an investor may get if they invest in stocks rather than government bonds.
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"A significant driver of our bullish call in March was based on the equity-risk premium reaching the same levels observed in March 2009," Wilson wrote. He had predicted the market had hit a bottom around March 16, just a week before the S&P 500 closed at its recent low of 2,237 on March 23.

"If there’s one thing we’ve learned over the past 10 years, it’s that when risk premium appears you need to grab it before it disappears," he said.
Moneycontrol News
first published: May 19, 2020 09:36 am

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