Why the stock market rally could continue, says Morgan Stanley strategist who just recently warned about the death zone

Following the rally that broke last week’s losing streak, investors look set to fade into the background on Monday.

Aside from a disappointing growth forecast in China over the weekend that knocked oil prices down, we have a sparse but meaningful list for the week that includes remarks by Fed Chairman Jerome Powell and an employment update.

Here is Deutsche Bank, summarizing what is at stake for the latter: “It can be said without a doubt that the last payroll report released on February 3rd was an important moment that started a series of events that mean that the last month has been a struggle for most financial assets, especially bonds. So, if you thought the random number generator that payrolls are usually exaggerated, you haven’t seen anything yet as we approach Friday’s big number,” wrote a team of strategists led by Jim Reed.

However, recent market momentum appears to have spurred one of Wall Street’s most bearish strategists to ease the gloom a bit. Our challenge of the day back to Mike Wilson, the Morgan Stanley strategist who warned two weeks ago that investors were pushing stocks into a dead zone.

In a new note, the strategist points out how the S&P 500 SPX,
+1.61%
“passed a crucial test of support” last week, staying above the widely watched 200-day moving average. Stocks could see further gains in the short term if the dollar and interest rates continue to decline, he said.

Wilson has set his sights on 4150 as the next resistance area for the S&P 500, though he still doesn’t seem ready to give up on this dead zone forecast.

“While this is a clear positive in the short term, we believe it does not belie the very poor risk reward currently offered by many stocks, given earnings estimates and projections that we believe remain too high,” he said.

Wilson, who expects the S&P 500 to end the year at 3,900 — the more bearish end of Wall Street’s wide-ranging forecasts — warned in late February that investors were once again following stock prices to “dizzy heights” driven by liquidity and greed. . He said the inflated valuations mean investors are not being compensated for the risk.

Others look a little further than the 200-DMA, such as this fund manager who points out how difficult it will be to get past that line in the sand:

@MikeDUnderhill

Our final word belongs to Bill Blaine, market strategist at Shard Capital, who concluded that we are facing “non-directional markets” and “the most dangerous moment.”

“There is no particular trend or belief that determines prices. The rebound of capital has passed. The bonds look tired. All the main themes are here, clearly in play; inflation expectations, interest rates, company valuations, public debt sustainability, geopolitics and global threats, but none of them has much momentum behind them. It will change in the blink of an eye, but how and when we just don’t know,” Blaine says on his blog.

Markets

Stock futures ES00,
+0.15%

YM00,
+0.01%

NQ00,
+0.32%
are battling for support while the TMUBMUSD10Y 10-year Treasury yield
3.906%
lower at 3.919% after briefly rising 4% last week. Oil prices class 1,
-1.24%
falling after China set a conservative growth target of “around 5%”. dollar DXY,
-0.05%
a bit higher.

Also read: Here’s what analysts have to say about China’s new growth target.

For more market news and actionable trading ideas for stocks, options and cryptocurrencies, subscribe to Investor’s Business Daily’s MarketDiem..

Buzz

Tobacco factory Altria MO,
+0.15%
announced a $2.75 billion deal with e-cigarette maker NJOY.

Tesla CLA,
+3.61%
cut prices on their Model S and Model X vehicles late Sunday night to help boost sales as the first quarter draws to a close. Stocks do little in premarket.

As part of the Amazon AMZN cost reduction program
+3.01%
will close eight of its checkout stores in San Francisco, New York and Seattle.

Esperion Therapeutics shares ESPR,
-0.31%
fell 22% as investors questioned published data on a cholesterol drug for statin intolerant patients. Nyxoah NYXH shares,
-1.55%
rose 19% after the medical technology company said it hit key regulatory and clinical milestones.

Several US-listed Chinese stocks fell following this modest upside target. Alibaba BABA,
-0.06%,
nio nio,
+5.28%
and Baidu BIDU,
+2.15%
all fell 1% or more.

Siena ZIEN,
+0.57%
shares rise on the back of the profits of the group of optical networks.

WW International (Weight Watchers) WW,
+9.82%
I’ll let you know after closing.

Norfolk South NSC,
-0.10%
announced a six-point safety plan after a train carrying hazardous materials derailed in Ohio last month.

Factory orders are due at 10am, a week later that will end with nonfarm payroll data in which we’ll see if the January spike was a spike. And twice a year, Fed Powell’s congressional testimony is scheduled for Tuesday and Wednesday.

Read: Powell to talk to Congress about the possibility of raising interest rates more, not less

Best of the Net

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Billionaire investor Mark Mobius says he can’t get his money out of China.

The cold reality of trench warfare on the front line of Ukraine.

Schedule

Why are most investors confused by inflation these days? Wasteland Capital’s Twitter account had an idea. You just haven’t lived it yet, baby.

@ecommerceshares

Tickers

These were the most popular tickers on MarketWatch as of 6am ET:

Ticker

Security Name

CLA,
+3.61%

Tesla

BBBI,
-4.49%

Bed Bath and more

TRKA,
-4.35%

Troika Media

AMC,
+7.87%

AMC Entertainment

GME,
+2.80%

game stop

NIO,
+5.28%

NIO

AAPL,
+3.51%

Apple

MULN,
+2.53%

Mullen Automotive

Monkey,
+8.98%

Preferred shares of AMC Entertainment Holdings

KSELA,
+1.03%

Excel Technologies

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A crappy US victory over Europe.

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