Morgan Stanley: Fed’s Taper Could be More Detrimental to Stock Markets Than Omicron

It appears that someone is not happy about the Fed’s latest hawkish move to accelerate the taper of asset purchases.

Morgan Stanley is sounding the alarm over the potential impact of the Fed Chair Jerome Powell’s hawkish comments on retiring some of the central bank’s unprecedented monetary policies. According to a note seen by Bloomberg, analysts led by the bank’s Chief US Equity Strategist and Investment Officer Michael Wilson warn that Powell’s plans to phase out asset purchases ahead of forecasts will have a far worse detrimental impact on financial markets than the Omicron variant.

Indeed, the bank is not at all concerned about the Covid-19 strain’s impact on US equities, but are instead disturbed about the incoming headwinds companies are about to face. “Tapering is tightening for the markets and it will lead to lower valuations like it always does at this stage of any recovery,” read the note. The analysts are anticipating that the S&P 500 will slump lower and valuations will decrease, while the index forward price-to-earnings ratio will fall by approximately 12%, because equity investors will begin to demand substantially higher risk premiums.

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Last week, Powell announced during a Senate panel meeting that it is finally time to retire using the word “transitory” to describe inflation, adding the Fed will consider boosting the timeline of tapering its asset purchases.

Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.