Wall Street banks look for a bear market bottom

Yahoo Finance Live anchors discuss big banks seeking a bear market bottom.

Video transcript

- Now here are three things you need to know this morning. Looking for a bottom, Morgan Stanley and Goldman Sachs both out with notes on the current state of the bear market, Long Time Morgan Stanley bear. Mike Wilson says the S&P 500 could rise another 5% to 7% percent before seeing more losses. Goldman Sachs also expecting more declines, as they say we are already seeing signs of consumer belt-tightening. And as they would say, folks, lots to unpack here.

But the overall sentiment on the market is after yesterday's weak, market shrugged off a lot of negative news, especially a lot of hawkishness from various federal reserve members. And you have, I think, Wall Street saying at least near-term, you could see stocks bounce.

- Yeah. And with this, within kind of Wilson's predictions that we've seen in the past, he correctly also called when the sell off would kind of take place over the course of this year and some of the larger factors, whether that be the international geopolitical tension or whether that be the fed's tightening pathway as well. There has been a lot that the bank has been able and Wilson specifically has been able to lean into to hit some of those targets, but then even more so from here, looking for a potential retracement of 38% to 50% of the entire decline not being unnatural at this point.

- A couple of things stand out to me from the stuff I was reading this morning related to this. Julian Emanuel over at Evercore ISI, who, by the way, is going to join us here in studio on Thursday at the end of the quarter. He said this may be a bottom but not the bottom, so to speak, which is sort of in line with what we're hearing from other strategists out there.

He says we don't think we'll see the bottom of the bear market until gasoline prices go down more meaningfully, which we've seen a little bit of a pullback, but not a big one. And he also said that we could see a potential, "a," not "the," bottom tradable rally, he calls it, into the next FOMC meeting on July 27th. So that was an interesting note as well.

One of the other things that stood out to me from David Kostin is he was looking at ownership in US stocks. Who owns US stocks? And he says households own nearly 3/4 of the US equity market now. A lot of them own it through mutual funds and ETFs. Directly, he says, they own 38% of the US equity markets. So that would seem to be a threat, right?

But he says, the vast majority of that number is wealthy individuals, who, he says, will be more insulated in an economic downturn. So sort of an interesting dissection in his note breaking down the ownership of the US equity market and the effect of that.

- And probably a lot of households that are willing to look longer term, whatever longer term might mean when you hear the top 1% continue to own the stock market, it's probably people that can invest for the next two to three, four, five, six years. Also one more point I want to bring up from Wilson's note. He notes the S&P 500 trading at a 16.3 times forward earnings pe multiple. That is hard to justify given the growing concern about corporate earnings. And I still get the sense and I understand these bottom calls at least short term for the markets, but I get the sense. Earnings estimates on the street have still not priced in earnings slowdown. And you can become a potential rude awakening as these earnings start to hit the street in the next few weeks.

- But even for the companies that haven't come out to actually say that they're expecting worse-- in the case of two major companies, and we were talking about this last week. Microsoft has already done so, and that on the FX side. But Target, more notably, here has done so twice at this point in time. And so if you kind of extrapolate from both of those instances and look across tech, look across some of the larger companies globally that are relying on their FX conversion. And then additionally, if you look at a Target that's more reliant on people wanting to buy furniture from them versus a La-Z-Boy, then you can start to look across some of the other earnings that are going to trickle through and see where that margin compression might actually take place.

- That's coming down, Julie. It's still 561 by me. It's still expensive, but it's coming down.

- I paid under $5 a gallon for gas in Pennsylvania.

- I need to figure out if it is cost effective for me to drive to your house and fill up my tank. Because it's expensive where I am. It's brutal.

- It's time to get a hybrid.

- I can't do that. I'm sorry.