HomeBusinessTraders are being duped by Bear-Market Rally, Morgan Stanley's Wilson says

Traders are being duped by Bear-Market Rally, Morgan Stanley’s Wilson says

(Bloomberg) — Morgan Stanley’s chief US equity strategist is not convinced the equity rally will last and strengthened his warning about a possible market drop later this year.

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“We would characterize this as the bear market continues,” Mike Wilson told Bloomberg Surveillance on Friday. “This is what bear markets do: they are designed to fool you, confuse you, make you do things you don’t want to do, chase things at the wrong time and probably do them at the wrong time. time to sell.”

The S&P 500 index is up more than 8% year-to-date, but is struggling to break out of its current trading range amid ongoing interest rate nerves and a deadlock in US debt ceiling negotiations. The meter rose again on Friday, hovering near the key level of 4,200.

Wilson has remained one of Wall Street’s biggest bears after accurately predicting the 2022 sell-off, even as US stock indices continue to rise this year. In his view, earnings expectations and economic uncertainties leave little cause for optimism that the positive momentum can continue.

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“The fundamental case doesn’t support where stocks are trading today, whether it’s at the index level or at the single-stock level, and the second half will be more choppy and likely down in the index,” Wilson said.

Earlier Friday, Bank of America Corp. strategist Michael Hartnett said that investors are fleeing stocks for money market funds and bonds and that another bout of risk-off trading is coming in June. Global equities saw outflows of $3.9 billion in the week through May 24, a third straight week of redemptions that places annual flow to the asset class just ahead of 2023, BofA said, citing EPFR Global data.

However, some voices on Wall Street have softened their gloomy outlook for US equities. Citigroup Inc.’s global asset allocation strategists US equities moved to neutral on Friday on an expected boost from artificial intelligence, impending peak rates and economic resilience. BofA’s Savita Subramanian raised her S&P 500 year-end target to 4,300.

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Meanwhile, Morgan Stanley Investment Management’s senior portfolio manager, Andrew Slimmon, struck a tone markedly more optimistic than the view of the bank’s house, as expressed by Wilson, saying in a telephone interview that expectations for a recovery in earnings in 2024 and the fear of missing the S&P 500 towards 4,600 by the end of the year.

“With the exception of some very permanent bears digging into their heels, more and more people will be reluctant to raise their estimates,” Slimmon said.

–With assistance from Sagarika Jaisinghani, Jonathan Ferro and Tom Keene.

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