Don’t buy into the current stock rally as the last stages of the bear market are not over yet, says Morgan Stanley’s chief strategist.

  • According to Morgan Stanley’s Mike Wilson, the recent rally in stocks is reminiscent of a bear market head fake.
  • He warned investors not to succumb to the current optimism because pessimistic reports are ahead.
  • “We think a recession in earnings is imminent,” Wilson wrote in a note this week.

According to Morgan Stanley’s Michael Wilson, investors should not let the stock market’s current rally fool them into buying the rally because corporate earnings will still be down.

In a note published Sunday, the company’s chief strategist explained that more and more investors are starting to consider a soft landing or postponing their recession forecasts to year-end due to the reopening of China and falling natural gas prices in Europe. .

But the bear market is not over yet, he said.

“The final stages of a bear market are always the toughest, and we were on high alert for fakes like the October to December rally that we anticipated and traded,” Wilson warned, noting that investors should not lose focus as price action emerges. action and obfuscated data. “Suffice it to say that we are not clinging to this recent growth because our work and process is driving profits so convincingly.”

He noted that the Morgan Stanley study predicted a sharp drop in future earnings estimates, regardless of any recession signals. The last two times the bank’s model performed far below consensus, the S&P 500 fell 34% and 49%.

The exact magnitude of these figures may not have been correct, but Wilson argued that they appear to be correct in direction.

His forecast is still based on shrinking companies’ margins as costs appear to be rising faster than sales. This pattern had already begun in various industries even before the official announcement of a recession.

“We think a recession in earnings is inevitable,” he wrote. “We believe the shift in investor tone supports our call for new S&P 500 lows, which will see this bear market close out later this quarter or early in the second quarter.”

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