The world’s top stock strategist says investors are falling into a trap – again

At the end of 2021, after three consecutive years of double-digit S&P 500 returns, many Wall Street strategists was sure The stock market will continue to soar in 2022. But Mike Wilson, Morgan Stanley’s chief investment officer and chief US equity strategist, isn’t so optimistic. Wilson argues that the combination of “fire and ice“—or rising interest rates and slowing economic growth—will hurt stock prices and lead to a challenging year for investors.

Every time the stock market rallies throughout the year, Wilson warns that it’s just a trap. And it turns out he was right. The S&P 500 eventually fell about 20% in 2022, ending the year at 3,839 — well away from Wall Street’s peak of 4,800. average forecast.

Now, with recent U.S. economic data raising hopes for a “light landing”—inflation under control without triggering a recession—the strategist says investors are repeating old mistakes. The S&P 500 is up more than 5% year to date amid easing inflation and recession fears, but Wilson believes corporate earnings will still take a hit, making the gains only another increase. bear market rally.

“The final phase of a bear market is always the most difficult and we have been on high alert for such scams,” he wrote in a research note on Sunday. “Suffice it to say, we are not interested in the recent recovery because our work and processes are convincingly reducing earnings.”

Wall Street’s consensus earnings estimate for the S&P 500 in 2023 is $228 per share, but even without a recession, Morgan Stanley projects earnings per share of just $195 this year. . Wilson said Sunday that there is “a growing body of evidence” that corporations’ expenses are growing faster than their revenues, which will eventually erode profit margins. Because of this, he said, he’s even “increasingly paying attention” to the “bear case” of $180 per share in S&P 500 earnings this year.

“Our work shows that earnings are increasingly eroding, with the gap between our model and future estimates being unprecedentedly wide,” he wrote. “The last two times our model was much below consensus, the S&P 500 fell 34% and 49%.”

Wilson, who most recently won the #1 stock strategist title Institutional Investor survey, isn’t the only one concerned that earnings could disappoint investors in the first half of the year. Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note Monday that he believes there is an adverse risk-return trade-off in broad indexes like the S&P 500 at the moment.

“We do not see much room for a market rally in the near term, especially considering our outlook for continued pressure on corporate earnings growth,” he wrote, repeating. Wilson’s concerns about earnings.

Wilson speak The S&P 500 could fall about 25% to 3,000 in the first half of this year as corporate profit margins deteriorate, forcing some executives to rethink their overly optimistic outlook. But then the strategist argues that a new bull market will begin, creating a “great buying opportunity” for investors as the blue-chip index rebounds to 3,900 by year-end.

Wilson went on to say that he welcomes the recent stock rally, arguing that it is a “necessary condition” for the last rallies of the bear market. For more than 50 years, stock market rallies have been a common feature of bear markets, occurring 6.5 times Medium.

Wilson said the latest rally was an example of “false signals and false reflections in the bear market mirror room” and advised investors to be patient for better opportunities to buy stocks. are in front.

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