Better late than never for Mike Wilson.
Last fall, the Chief U.S. Equity Strategist and Chief Investment Officer at Morgan Stanley, was bearish while the bull market kept raging.
Then, in January, when cracks started to show in the stock market, Wilson was telling investors to “start bottom fishing the (stock) losers” such as Hippo Holdings, which has gone from $2.50 a share to $1.69 since then.
Now, Wilson is on the right side of the trade saying investors should sell any rally in the stock market over at least the next two months because soaring energy prices and higher interest rates pose big risks.
Here are the hi-lights of Wilson’s reasoning.
Any rally in the stock market should be taken an as opportunity to sell as investors are facing a convergence of risk factors that will pose outsized risks to the market, Morgan Stanley analysts wrote in a note on Monday.
The Federal Reserve is unlikely to deviate from its path of raising interest rates this year, even as pressure on the economy mounts, analysts led by Mike Wilson wrote.
The biggest risks will be seen over the next six to eight weeks, they said.
The bank pointed to the increase of risks to growth, spiking oil prices, and headwinds from the war in Ukraine paired with the Fed’s commitment to tighter policy as reasons the bear market could deepen further.
“We are firmly in the grasp of a bear market that is incomplete in both time and price.”
“The recent squeeze in oil prices puts even more pressure on consumer sentiment/spending intentions for durable goods which are already historically depressed.
We haven’t seen earnings cuts yet despite a host of risks and the growing risk of excess inventory being built and ultimately having an adverse impact on pricing is not yet discounted.”
The US central bank has signalled it will continue with its hawkish pivot announced last fall.
Morgan Stanley analysts said that while the recent fall in the 10-year Treasury yield may suggest investors are hoping for a more dovish pivot, this is merely indicative of a flight to safe haven assets amid the conflict in Ukraine.
Oil prices this weekend barrelled past $130 a barrel, and Western nations have weighed new sanctions on Russian energy exports.
A Yale economist noted that a Russian default could spill over into energy markets, and would have global repercussions.
“Any relief should be sold. We recommend staying defensively oriented by running less risk than normal and searching for companies with superior operational efficiency and earnings stability.”