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Equities bear number 1 on Wall Street from Morgan Stanley´s belief US stocks are in for a short-term rally. The reason is the absence of recession and earnings capitulation.
A 25% slump in the S&P 500 this year has left it testing a “serious floor of support” at its 200-week moving average, which could lead to a technical recovery, strategist Michael J. Wilson wrote in a note on Monday the 17th of October.
Being one of Wall Street’s most prominent bearish voices, Mr Wilson who correctly predicted this year’s slump said he “would not rule out” the S&P 500 rising to about 4,150 points suggesting almost approximately 16% upside from its latest close.
“While that seems like an awfully big move, it would be in line with bear market rallies this year and prior ones,” he said while retaining his overall negative long-term stance on equities.
Last week he also confirmed that Morgan Stanley´s sees stocks grinding higher as markets begin believing inflation and interest rates will transition lower. The S&P500 will rebound up to 15% if it slides under the 200-week moving average of approximately 3600.
Mr Wilson stated in mid-October that he believes inflation has now peaked and could fall rapidly next year. This note to clients was met with skepticism but Mr Wilson doubled down on his short-term bullish call on equities a week later. He sees stocks grinding higher as markets transition to expectations of falling inflation and lower interest rates.
When the call was met with doubt from clients Mr Wilson pointed out a pullback in bond yields would provide the fuel for the next leg of the tactical rally, “Until we get full capitulation on 2023 earnings estimates, something we think may take a few more months.”
A couple of days later on the 26th of October in an interview with Bloomberg Television he said that the bear market in US equities could be over sooner than investors think and also that the bear market will be over probably sometime in the first quarter. He reiterated this was “subject to revision” and if the market starts “trading off again and the S&P500 blows through 3650 on the downside” they will be bearish again.
US equities have so far in 2022 not seen this level of decline since the global financial crisis. The S&P500 remains down 22,5% this year with inflation and slowing growth combined with a hawkish policy from FED. Some fear the economy could be heading for a recession.