Morgan Stanley thinks the growth stocks that have pushed the S&P 500 Index to record highs are poised to roll over, sparking a double-digit decline in U.S. equities.
That’s one opinion. But the investment bank is also the most optimistic firm on Wall Street when when it comes to how much shares of two of those market leaders -- Amazon.com Inc. and Google parent Alphabet Inc. -- will gain over the next year.
The stark contrast in Morgan Stanley’s outlook for growth stocks is a study in how assessing the short-term future prospects for even the most well-known and biggest businesses can spark deep divides -- even within the same bank. With top-down analysts free to operate independently from their single-stock peers, the two groups can often arrive at very different conclusions on the same companies.
A representative for Morgan Stanley declined to comment on the firm’s diversity of opinions on U.S. growth stocks.
Chief U.S. equity strategist Mike Wilson has the lowest price target on the S&P 500, expecting the benchmark to fall to 2,750 by year-end -- it currently stands at around 2,890. His bearish stance on technology stocks, which he lowered to underweight in early July, is central to that view.
The strategist, who has envisaged a market tumult worse than February’s record spike in volatility and acute pain for growth stocks, recently admitted to being wrong -- or at the very least, premature.
“While we might just be early, it amounts to the same thing,” he wrote in a note on Sunday.
Trillion Dollar Club
Morgan Stanley’s bottom-up analysts are the ones with their heads in the cloud, so to speak, boasting the highest price targets on Amazon and Alphabet among those surveyed by Bloomberg. Brian Nowak highlighted the rapid growth Amazon’s high-margin revenue sources and Alphabet’s long runway for monetizing its platforms in raising his price targets for the stocks by 35 and 14 percent, respectively, one week ago.
Amazon is considered a consumer discretionary company rather than part of the technology sector, but that’s another market segment the bank’s chief equity strategist thinks will come under particular stress in a downturn. The stock briefly joined Apple Inc. as a member of the trillion-dollar market capitalization club on Tuesday before paring some of its advance.
On Wednesday, analyst Katy Huberty raised her price target on Apple to $245 from $232, saying the company was well-positioned for multiple expansion as investors begin to appreciate its burgeoning heft as a content creator.
It’s difficult to map out a scenario in which both camps within Morgan Stanley will be right at the same time. A bullish stance on the likes of Apple, Amazon and Alphabet has generated strong returns this year as well as in 2017.
But the tide may be starting to turn Wilson’s way on his out-of-consensus call. The technology sector has underperformed the S&P 500 by nearly a percentage point this week. Apple, Amazon and Alphabet were all off at least 1 percent at one point in trading on Wednesday. However, there have been many false dawns on a rotation away from growth stocks.
“We think the weather is still quite unstable, even though the sun may be shining at the moment,” Wilson wrote. “Just as calling for rain on a brilliantly sunny day leaves a weatherman open to criticism, I am still willing to take that risk on U.S. equity markets as we enter the seasonally weakest month of the year.”