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'The 4 horsemen of the apocalypse': What Wall Street's biggest firms are telling clients about the stock market's sell-off

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  • Global stocks are selling off sharply this week mainly on investors' concerns about higher US interest rates. 
  • We've compiled comments from some of Wall Street's top firms on what's driving the sell-off, what investors should be doing with their money now, and what may happen next. 

US stocks are in their second major bout of volatility this year, leaving investors, traders, and even non-finance professionals full of questions about what is going on. 

The worst of the selling occurred on Wednesday, when the Dow Jones industrial average fell by more than 800 points (or 3%+), its third-largest point drop in a single day. The S&P 500 recovered much of its losses in premarket trading Thursday after a Labor Department report showed that inflation was not as hot as expected in September. 

Tech stocks, which have been the biggest beneficiaries of investor dollars during this bull market, have equally experienced the most selling; the Nasdaq Composite has plunged 4.7% this week. 

We've compiled commentary from some of Wall Street's biggest firms on what's behind the sell-off, what investors should or should not be doing now, and what may happen next. 

SEE ALSO: BANK OF AMERICA: Corporate America is about to unleash 'dry powder' onto the market that could end the sell-off, and 2 sectors will spearhead the profits

DON'T MISS: Why global markets are collapsing right now, and who you should blame for it

UBS Wealth Management: We're still bullish.

"What hasn’t changed over the past week are the solid US economic and earnings fundamentals," Mark Haefele, the global chief investment officer, wealth management, at UBS.

"With Q3 earnings season about to start, we expect EPS growth of about 23-24%, very similar to the first two quarters of this year. Granted, the focus will be on company guidance for future earnings, but for most sectors the tariffs announced thus far are not that impactful and underlying trends in even affected sectors (materials, industrials, tech, and consumer discretionary."

"...Given the fundamental outlook, we continue to recommend an overweight position to risk assets in our tactical asset allocation."

Morgan Stanley: There's no margin for error.

"Margin downside has negative implications for US equity benchmarks as the rate of change in operating margins is now strongly correlated with stock prices — a trend we expect to continue," said Mike Wilson, the chief US equity strategist.

"Many investors we speak to believe elevated tech margins will remain resilient, keeping margins stable for the overall market. We disagree and argue that tech is more cyclical than many appreciate."

Bank of America Merrill Lynch: Stocks look expensive — for now.

"Do P/Es have to compress if rates rise? No," said Savita Subramanian, the head of US equity and quant strategy. 

"In fact, over the last 14 rising rates cycles, multiples have expanded half the time and have contracted half the time. And during many of those multiple compression cycles, P/Es dropped for a good reason: earnings rose faster than prices rose. 

This is similar to what we’ve seen this year, where YTD, the S&P 500 is up 8% but earnings estimates are up 19% ... Stocks look expensive versus history across most valuation metrics, except on growth, free cash flow, and relative to bonds (for now!)."

See the rest of the story at Business Insider

Full "The Business Insider: The Money Game" article

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