The index tracking the United States’ largest companies could drop as much as 20% due to slow growth and a decline in consumer confidence, Bloomberg reported.
Morgan Stanley strategists said the “ice” outcome would be a worst-case scenario for the S&P 500, should steep declines be recorded in both the economy and corporate earnings. The view is one of two possibilities, with the other being more bullish.
The other outcome, dubbed as “fire,” would bring about a 10% correction in the S&P 500, which takes into consideration the tapering of the Federal Reserve’s economic stimulus.
The strategists urged investors to remain defensive and stick with “quality” firms to ensure protection and keep exposure to stocks that are likely to benefit from the increase in interest rates.
The note comes as global stocks declined amid concerns that China Evergrande Group’s debt could have wider financial implications on the financial system. The S&P 500 remains 2% below its all-time highs.
Strategists are leaning more toward the ice scenario, with the mid-cycle transition expected to end with the rolling correction hitting the index.
