- Morgan Stanley’s Mike Wilson said U.S. stocks have surged too far and are in a “dead zone.”
- “Investors have once again caught stocks to dizzying highs,” he warned in a recent memo.
- Wilson predicts that the S&P 500 could plunge between 26% and 3,000 points within the next few months.
Morgan Stanley’s Mike Wilson says U.S. stocks are soaring to unsustainable highs, but investors are like mountaineers who blindly rush to the summit of Everest without properly weighing the risks. are acting in the same way.
The bank’s chief U.S. equity strategist said Sunday that current valuations and “Death Zone” – In the area just below the top of the highest mountain in the world, oxygen is so scarce that the human body begins to die minute by minute, cell by cell.
“Many deaths from high-altitude climbing are caused by the death zone, either directly through loss of vital functions or indirectly through poor decisions made under stress and physical weakness leading to accidents,” Wilson said. It is
“This is a perfect analogy to where equity investors are today and, frankly, many times over the last decade,” he added.
In Wilson’s analogy, the death zone represents the excess level that stocks have risen so far this year.
The benchmark S&P 500 Index is up 6% year-to-date, while the tech-focused Nasdaq Composite is up 13% over the same period.
Investors are buying up stocks on expectations that the Federal Reserve will start cutting interest rates by the end of the year. Falling interest rates tend to push up stock prices as they boost future cash flow, which is central to a company’s valuation, supporting more spending and cheaper borrowing.
Mr. Wilson has repeatedly warned that the market rally will not last long. He expects inflation to prove stronger than many expected, forcing the Fed to hold rates on hold longer to control soaring prices.
“The bear market rally that started in October with reasonable prices and low expectations turned into a speculative frenzy based on: Fed Pause/Pivot It won’t come,” he wrote in his latest memo.
Starting in late 2022, Wilson said the S&P 500 is likely to bottom out at 3,000 points this year. That’s 26% below the 4,080 points traded at Friday’s close.
This is noticeably more pessimistic than most people on Wall Street. Some market players, including Wharton University professor Jeremy Siegel, have expressed support for a bullish “no landing” outlook.
Compared to a ‘hard’ or ‘soft’ landing, in a ‘no landing’ scenario, the Fed would be able to curb inflation without any real harm to the economy, thanks to the room provided by the Federal Reserve to raise interest rates. You can go as low as 2%. Strong US labor market.
According to Wilson, this kind of optimism is just another symptom of the death zone.
“as [stocks] Whatever that means, there is talk of a ‘no landing’ scenario,” he said. ”
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