Morgan Stanley's Wilson says this is not a new bull market and the Fed may reawaken the bear

Morgan Stanley has warned investors not to be too quick to assume that the bear is gone from the stock market. Morgan Stanley's strategist Mike Wilson said that both institutional and retail investor's have taken a more positive stance. However, Wilson said investors should not think the bear market is over yet. He cited the outlook for earnings, as one reason to be cautious. He said that a pause on interest rate hikes, once viewed as a positive move towards a low-rate environment, could increase the bearishness in the market. His comments come two days before the Federal Reserve is expected to announce its interest rate policy. Investors will be looking for updates regarding the rate path and any commentary from Fed chair Jerome Powell about the state of economy. According to CME Group’s FedWatch tool there is a 74% likelihood that the Fed will not raise rates at its meeting this week, breaking the streak of ten consecutive increases. "With the S & P 500 rally crossing the threshold of 20%, more people are declaring that the bear market is officially over," he wrote in a Monday note to clients. We respectfully disagree because of our 2023 earning forecast. Ironically, the Fed's pause could awaken tactically the bear just as liquidity headwinds are increasing. Wilson stated that investors have become bullish after the S & P 500 cleared a key benchmark - a 20% rise from October lows. This is the simplest definition of a bullish market. However, many investors think that a bullish market can only be confirmed if the market reaches new highs. Wilson stated that the 20% threshold had emboldened certain market participants to declare the end of the bear market. .SPX mountain S & P He's not so sure. He said that the firm's fundamental outlook for 2023 has fallen "very far out of consensus" in recent months, and its expectations for 2023 earnings are even lower than Wall Street consensus.

The growing gap between Morgan Stanley's earnings and those of its peers is due to Morgan Stanley's inability, to be more optimistic. Wilson believes that many people will be surprised at how much earnings drop this year, and the strength of the recovery in 2024 or 2025. He said that the current bear-market is similar to what happened between 1946 and 48, when the economy also experienced a boom-and bust cycle. Both World War II, and the Covid-induced locksdowns, saw excess savings built up. These were then used to flood the economy at times of supply constraints. In both cases, inflation rose. Over the past seven decades, earnings have been in recessions that averaged around 16%. Wilson explained that a historical analysis showed the expected drawdowns required to reach the firm’s 2023 estimate $185 by year's end have been seen before in previous earnings recessions. Morgan Stanley's estimate for 2024 of 23% growth in earnings reflects its expectations for a rebound. Michael Bloom, a CNBC reporter, contributed to this article.