By Senad Karaahmetovic
S&P 500 and other major U.S. indices rallied strongly late last week in response to the failed attempts by bears to break below the key near-term support. This zone around 3,930-3,940 is marked by the 100 and 200 and daily moving average lines, which facilitated a strong rebound when tested on Thursday.
More precisely, S&P 500 gained 0.76% and 1.62% on Thursday and Friday, respectively, to close the week 1.9% higher.
Morgan Stanley strategists believe this rally could extend in the near term, especially if the U.S. dollar and yields continue to fall.
“We could see further upside if the U.S. dollar and interest rates continue their fall from Friday with the next resistance for the S&P 500 at 4150 under such conditions,” they wrote in a client note.
“The bear market is not over,” strategists warned investors once again. They remain bearish on U.S. stocks as earnings estimates remain “far too high.”
“The gap between reported earnings and cash flow is the widest in 25 years, driven by excess inventory and capitalized costs that have yet to hit the P&L. This ties very nicely with our negative operating leverage thesis where margins are likely to disappoint current consensus forecasts by a large amount.”