Mike Wilson Says Enjoy This Little Window Where Stocks Are Working Because It’s About To End
Morgan Stanley’s Michael Wilson said investors should enjoy this recent market rally. The Wall Street firm’s chief US equity strategist believes the recent rally, which follows the Federal Reserve’s aggressive action to curb inflation, will not last long – as corporate earnings are expected to begin to decline. Chances are. “While the bond market is beginning to believe that they are keeping inflation under control, this could come with a heavier-than-usual cost, potentially a recession while they are still tightening, which could lead to a glut of stocks ahead of the earnings surprise. Can leave a very small window to work with. Downside,” Wilson said in a note to clients. “We think the window is now but it could close quickly. The risk reward is bad after the recent rally, so trade accordingly when time is up,” he said. The S&P 500 recorded its best month since November 2020, up more than 9% in July, as investors’ fears about aggressive pacing in rates began to ease and they bet inflation might peak. is on. The rally in July followed an 8% sell-off in June. Wilson, one of Wall Street’s biggest bears, said prior declines in stocks don’t fully reflect recession risk because earnings declines are typically too steep. “While there was bearish talk during that sell-off and valuations reached our target P/E of 15.4x, we don’t think it properly discounts the loss of earnings that would be happening if we were actually in a recession right now. If so, it will happen,” Wilson said. , If the economic slowdown strikes, the equity benchmark could fall towards 3,000, or nearly 27% from Friday’s close, Wilson said. He said that if the US survives a recession, the S&P 500 could fall in the range of 3,400 to 3,500. The benchmark hit a low of 3,636.87 on June 17. — CNBC’s Michael Bloom contributed to this report.
