According to Morgan Stanley, the US stock market is likely to face further losses this year, with stocks increasingly under pressure from disappointing earnings and high interest rates.
Michael Wilson, chief US equity strategist at Morgan Stanley and a longtime Wall Street bear, warned in an analyst note this week that the stock market could continue to fall in March.
“With the stock market showing signs of exhaustion following the latest Fed meeting, the S&P 500 is at critical technical support. Given our view on earnings, March is a high-risk month for bear market resumption,” Wilson wrote. . “Ultimately, we think this rally is a bull trap.”
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He previously suggested that the S&P 500 could fall to 3,000 points within months, down about 25% from current levels.
The gloomy forecast comes after a brutal year for the stock market, the worst since the 2008 financial crisis. All three indices plummeted in 2022, completing a three-year profit streak. The Dow Jones Industrial Average ended the year down 8.8%, the best of the three. The S&P 500 fell 19.4% while the tech-heavy Nasdaq Composite plunged 33.1%.
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Equities initially rose in early 2023, although equities have lost some of that momentum due to continued inflation and interest rate fears. As of Thursday afternoon, the S&P is up about 4% from the start of the year, but down about 5% from early February.
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Wilson is not alone in his bearish outlook. Bank of America chief economist Michael Hartnett previously predicted that a “no landing” scenario in the first half of the year — no immediate growth slowdown but inflation remains above trend — could send stocks crashing, pushing the S&P another 7 % would drop.
And JPMorgan strategist Mislav Matejka argued in a note last week that stocks won’t bottom until the Federal Reserve ends its campaign of aggressive rate hikes and starts cutting.
Federal Reserve policymakers have already voted to raise interest rates eight consecutive times to a range of 4.5% to 4.75%, and they indicated last month that a few more hikes are on the table this year.
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But a slew of hotter-than-expected economic data reports, including the burst jobs report january and a disappointing inflation report pointing to the pervasiveness of high consumer prices has raised the specter of a higher peak rate and no rate cuts in 2023.
“Because uncertainty about fundamentals is seldom this great, technical factors may determine the market’s next big move,” Wilson said. “We think this rally is a bull trap, but recognize that if these levels continue, the stock market may have one last stand before we fully estimate downside gains.”