Morgan Stanley: Dollar strengthening - the main risk for US stocks

The strengthening of the dollar may threaten the growth of the American stock market, believes Mike Wilson, the chief strategist for shares listed in the United States of Morgan Stanley, writes Business Insider.

The U.S. currency weakened this summer as markets anticipated major rate cuts, but the move has reversed in recent weeks as data showing a robust economy makes more aggressive monetary policy easing less likely.

"Further strengthening of the dollar may slow the rally (nr. of the US stock market). That's starting to happen. It's probably the only thing we're looking at right now that can stop this pace of new records being set every day," Wilson said in an interview last week on Bloomberg Radio.

According to Morgan Stanley strategist, U.S. dollar liquidity, or the increase in the supply of dollars, began to pick up rapidly in the past month after hitting a low nearly two years ago, mainly on the back of expanding balance sheets by China and Japan's central banks and a dollar weaker.

"A stronger dollar would break the rally," Wilson said.

From the beginning of the month until last Thursday, the US Dollar Index (DXY), which measures the strength of the United States currency against a basket of six other currencies, had an increase of 2.8%, an appreciation that appeared in the first row, as investors now expect a less aggressive monetary easing cycle from the Federal Reserve amid an overheated economy and still high inflation, according to Business Insider.

The opinion of the Morgan Stanley strategist appears in the conditions in which the "bull" market of shares in the United States is already two years old, with indices going from historical highs to historical highs. Wilson believes that the market's rise is primarily due to the easing of monetary policies by most major central banks, including those in the United States and China.

"It's a very robust rally, driven by monetary policy," said the strategist. "This will continue until, basically, there is a real shock from the economic area or there are restrictions in terms of liquidity."

Wilson said that the price-to-earnings ratio of the S&P 500 is currently 22, which has only happened a few times in recent history. In his opinion, the growth of the US stock market is not threatened by the results of the upcoming presidential or congressional elections. "Neither side has really shown the willingness or ability to slow down fiscal spending. I think the main concern is how they finance them," the Morgan Stanley strategist said on Bloomberg Radio, quoted by Business Insider.