“We are in a new bull market,” but on the other hand, “the market is ignoring the risk of recession.” Who is right on Wall Street?

As the S&P 500 index returns to near all-time highs, investment strategists are increasingly optimistic about the outlook for US stocks, while also acknowledging that the market could use a correction as a buying opportunity.

Mike Wilson, chief equity strategist at Morgan Stanley, one of the most closely watched strategists on Wall Street, is optimistic about the outlook for the US market.

"We believe the bear market, which was really nasty, ended in April. Now we're in a new bull market," Wilson said in an interview with Bloomberg earlier this week.

According to the strategist, bull market conditions are still creating an attractive risk-reward ratio for U.S. stocks and upward revisions to corporate earnings forecasts, particularly in the industrial, financial and technology sectors.

Economic factors also favor this.

"For several years, we've been talking about Treasury yields at 4.5%, which stock market multiples don't particularly like. The current level of 4.23% looks good. To continue the bull market, we need ingredients like the growth in corporate earnings we're seeing, and monetary policy that doesn't suppress that growth. Both fiscal and monetary policy are looking good. All signs point to the Fed's next move being a rate cut," Wilson explained.

At the same time, Morgan Stanley has been warning clients for some time about the upcoming correction, which would be worth taking advantage of for buying.

"Volatility is normal in both bear and bull markets. Instead of a straight run up, consolidation, fluctuations, or a correction would be natural. I hope we see that. We've been saying that the third quarter is the best time for some correction or rebound," Wilson said. "However, I want to be clear that we're still in the early stages of a new bull market, so we'd like to buy these dips."

He also admitted that there is greed in some segments of the market, especially when looking at stocks like Palantir.

"It would be naive to say that there isn't a certain amount of greed in some parts of the market, but that's what happens during bull markets, just as extreme pessimism forms during bear markets, as we saw in April. Our job as investors is to find good risk-reward opportunities," the experienced strategist concluded.

Following last week's very weak US labor market data, market participants have significantly changed their expectations for the Fed's moves in the coming months. The probability that the Fed will cut interest rates by 25 basis points in September now stands at 90%, up from less than 40% a week ago.

Markets are pricing in the Fed cutting rates by a total of 100 basis points by the middle of next year.

However, a faster pace of interest rate cuts could push the S&P 500 index into the speculative bubble zone in the coming months.

"Gradual rate cuts could reinforce the positive effects of the macroeconomic data cycle, but aggressive rate cuts by the Fed to neutral levels could inflate the market valuation bubble," Societe Generale analysts write in their weekly report.

The Fed's interest rate cuts would reinforce the already positive backdrop for U.S. equities, which are creating higher economic growth, healthy levels of corporate debt and a recovery in business activity.

"The strong returns on the S&P 500 over the past three months have confirmed our positive outlook on the US outlook. The crisis of confidence is short-term," Societe Generale analysts said.

According to the bank's strategists, the S&P 500's bubble-risk level would be 7,500 points. That's 18% higher than its current level.

According to Societe Generale's base case, the S&P 500 should reach 6,900 points by the end of the year, which means a potential increase of almost 9% from the current level.

Investors in the US stock market, which remains near historic highs, are ignoring the risk of recession, analysts at Goldman Sachs warn.

Investment bank experts estimate the risk of a recession in the US at 30%, which should be a red flag for investors. However, investors are so optimistic that trying to play against the market "almost looks irrational," Goldman Sachs states.

"The problem is that markets can't see far enough into the future. And that's why they will ignore the risk of recession," wrote Paolo Schiavone, macro strategist at Goldman Sachs, in a note to clients.

According to the bank's analysts, investors will likely ignore a potential slowdown in the US labor market and focus more on abundant liquidity in the markets, structural growth trends such as artificial intelligence, and tax breaks.

The weakened US labor market, changes in the Fed's board and the Bureau of Labor Statistics may negatively impact the dollar and US Treasury bonds, warn strategists from the UBS banking group.

Investors likely haven't yet fully priced in the events of late last week. It started with a very weak jobs report, then Donald Trump fired the head of the agency that publishes the data, and then a Fed board member resigned, paving the way for the appointment of a Trump-friendly person to the position.

“These developments are significant as, for the first time since spring, negative economic and risk premium factors for the dollar are starting to come back into play,” UBS strategists wrote mid-week.

Against the backdrop of these events are concerns about growing political pressure on key US financial and economic institutions and a threat to their independence.

Donald Trump fired the head of the U.S. Bureau of Labor Statistics after the latest data, which, after revisions, showed 258,000 fewer jobs were created in recent months than originally reported. Trump also regularly criticizes the Fed chairman for his failure to cut interest rates.

“The perception that the quality and reliability of US economic data are questionable undermines the argument for holding US assets and taking dollar risk,” UBS strategists said.

The US dollar index has fallen by about 9% since the beginning of the year and could fall further due to the aforementioned risk factors, UBS warns.

One of the companies that attracted the most attention this week was Danish pharmaceutical giant Novo Nordisk. Its shares fell to a five-year low after lowering its earnings forecast for this year. Novo Nordisk's shares have fallen nearly 50% this year alone.

Following the recent events and the price decline, analysts from UBS bank were among the first to update their rating, lowering their recommendation from "buy" to "neutral" and the target price from DKK 600 to DKK 340.

UBS justifies the downgrade by citing competitive pressure from companies selling equivalents of Novo Nordisk's drugs. According to the bank's analysts, sellers of GLP-1 drug copies will remain in the US market, a key market for Novo Nordisk's obesity drugs, and will hamper the Danish company's revenue.

“We don’t see any potential growth catalysts, other than theoretically very large, unmet demand in the obesity drug market,” said UBS equity analyst Matthew Westonas.

Bank analysts estimate that demand for Ozempic is "weakening, despite strong brand recognition." Ozempic has the same active ingredient as Wegovy but is used to treat type 2 diabetes. Ozempic's direct competitor, Mounjaro, manufactured by the American company Eli Lilly, has been "significantly better received" by doctors.

They see an opportunity to boost sales in Donald Trump's proposal to make GLP-1 drugs used to treat obesity reimbursed under Medicare. However, Trump recently sent letters to pharmaceutical companies, including Novo Nordisk, demanding lower prices for drugs sold in the US, which creates the risk of additional challenges, warns UBS.

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