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Morgan Stanley’s Wilson says bear rally is coming to an end and it’s time to take profits


According to Morgan Stanley’s Michael Wilson, the stock market’s rally from October lows is coming to an end and it’s time to take profits.

Chief equity strategist, who correctly predicted this year’s stock market sell-off, now expects the S&P 500
SPX,
-1.79%

to continue its decline from the start of the year, after last week’s benchmark surpassed the 200-day moving average.

“This makes the risk-reward for playing to the upside pretty poor at this point, and we are now sellers again,” a group of strategists led by Wilson wrote in a note on Wednesday. Two.

Wilson went from one of Wall Street’s most outspoken bears to a tactical bull in October, when he predicted a December rally in US stocks with the S&P 500 reaching 4,150 points. However, as the large-cap index currently trades near the bank’s initial tactical target range of 4,000 to 4,150, the strategist said investors should consider taking profits and preparing for lows. new bear market.

Wilson also said in November S&P 500 will make a new bottom from 3,000 to 3,300 in the first quarter of 2023, before falling back to 3,900 by year’s end.

See: This little-known but accurate economic indicator indicates a recession and lower stock prices are certain.

US stocks fell on Monday after the three major benchmarks on Friday posted a second straight week of gains. The S&P 500 on Monday fell 1.8% to end at 3,998, while the Dow Jones Industrial Average
DIA,
-1.40%

down 1.4% and Nasdaq Composite
COMPUTER,
-1.93%

down 1.9%. Stocks jumped last week after Federal Reserve Chairman Powell said the central bank’s growth rate rate hikes could slow down as soon as the December meeting.

From a very short-term perspective, Wilson and his team think the S&P 500 could hit 4,150, or about 3.8 percent above current levels, “in about a week’s time.” However, a break of the recent intraday low of 3,938 would provide some confirmation that the bear market is ready to reassert the downtrend in earnest, Wilson said.

Morgan Stanley’s call for a price cut has been echoed by other Wall Street banks. Marko Kolanovic of JP Morgan Chase & Co., once one of Wall Street’s most prolific bulls, predicts a stock price decline early next year. He also argued that the stock rally was overdone after October. Meanwhile, Strategist at BofA Global Research said it’s time to sell recovering stocks in the face of rising unemployment risk next year.

Wilson recommends investors get defensive in the healthcare, necessities and utilities sectors as falling interest rates from here should be seen as “negative growth rather than positive valuation/Fed pause.” Additionally, growth stocks are unlikely to benefit from a rate cut given the risk to corporate earnings, especially for consumer-oriented and technology companies, which are heavily weighted. large number of growth indicators.

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