HomeBusinessMorgan Stanley's Wilson says there is too much optimism about stock prices

Morgan Stanley’s Wilson says there is too much optimism about stock prices

U.S. equity investors are in for disappointment as economic growth this year will be weaker than expected, according to Morgan Stanley stalwart Michael Wilson.

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The strategist’s warning stands in stark contrast to the rally on Wall Street, driven by expectations that the economy can weather the Federal Reserve’s rate hike campaign, which is expected to peak soon. Technology stocks have outperformed on the excitement surrounding artificial intelligence developments.

“At current prices, markets are now anticipating a meaningful regrowth acceleration that we believe is unlikely this year, especially for consumers,” Wilson wrote in a note Tuesday. “Potentially weaker numbers for September and October have not been priced in in many stocks and expectations.”

Last month, Wilson — whose negative outlook for stocks hasn’t materialized this year — said the markets’ “risk-free” state will continue through the fall and possibly winter. Some other strategists endorse his bearish view, such as Bank of America Corp.’s Michael Hartnett, who said U.S. stocks are still facing a pullback due to the risk of a hard economic landing. Mislav Matejka of JPMorgan Chase & Co. said there is complacency in US stock sentiment and warned there is no longer a safety net to protect stocks.

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In Tuesday’s note, Wilson said broadsides remain weak for the S&P 500 and Nasdaq Composite, citing the number of stocks that contributed to the rally, and that gains are not spreading. He also pointed to the weakening of personal consumption spending as his team remains skeptical about the acceleration of economic growth.

“The bottom line is that economic data at this stage of the cycle can be contradictory and uncertain for both bulls and bears,” Wilson said. “During such periods, price action tends to influence sentiment and positioning more than usual.”

The strategist prefers industrials and energy companies within cyclical stocks that benefit from economic growth, while avoiding consumer discretionary and small caps.

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