An expert from Morgan Stanley has warned that the US share market could face further trouble this year. However, I believe this could mean great buying opportunities are on the way for ASX shares.
The pessimistic call about US shares comes from Mike Wilson, an expert from Morgan Stanley.
Negative expectations
Wilson thinks further declines could be ahead, despite the S&P 500 Index (INDEXSP: .INX) registering a drop of more than 20% in 2022.
According to the Australian Financial Review, Wilson said while the market is now more fairly priced, the S&P 500 is not yet pricing "the risk of a recession, in our view, which is 15% to 20% lower, or roughly 3,000".
"The bear market will not be over until recession arrives or the risk of one is extinguished," he said.
Part of the pessimism comes from the fact that the yield on 10-year US government bonds has gone higher than expected. It was recently 3.27%.
Wilson said:
For us, the end game remains the same; we see a pretty poor risk reward over the next three to six months with recession risk rising in the face of very stubborn inflation readings. Valuations are closer to fair at this point, but hardly a bargain if earnings are likely to come down and/or a recession is coming.
We recognise a lot of pain has already been inflicted during this bear market. Nevertheless, we can't yet get bullish for more than just a bear market trade until we reach the 200-week moving average of 3,500. Even then, we would only expect an oversold bounce until recession risk falls materially.
Why could this mean better buying opportunities for ASX shares?
As an investor, I want to be able to buy my favourite investment ideas at a cheaper price.
Share prices don't all move in unison. However, quite often, we see the ASX share market following on from what has happened in the US share market.
If there is going to be a decline of US shares by 15% to 20% from here, then it's possible the ASX share market could also see falls.
I would like to see further ASX declines so that I can buy more shares at a lower price. I am many years from retirement, so getting more bang for my buck in the next few decades sounds better to me.
As Warren Buffett once said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
I'm looking forward to loading up on ASX share hamburgers during this period, particularly if prices go quite a lot lower. I have already been buying this month, and I plan to invest a lot more over the rest of this year.
It's also possible to invest in iShares S&P 500 ETF (ASX: IVV) on the ASX.
