Mike Wilson, Morgan Stanley’s chief stock strategist, says the market faces earnings pressure and investors should not be misled by tech rally.
According to Wilson, the downside risk to the stock market is at its greatest level in a year as companies continue to face pressure on earnings in the face of challenging economic conditions.
Following the failure of Silicon Valley Bank, Wilson contends, stocks now faced the biggest negative risk in a year.
Prior to 2008, Wilson also anticipated the market experience its worst profits recession.
Wilson argued against positive market analysts who are supporting the current uptrend in tech stocks in an interview with Bloomberg TV on April 11. Notwithstanding the fact that some investors are seeking refuge in the tech industry despite the banking uncertainties, he cautioned that firms are still likely to see earnings pressure that the market has not yet completely priced in.
He criticized the robust success of tech companies, saying, “The malinvestment was just so severe and the overearning was even worse.” “We believe that equity market risk is now higher than it has been in the previous six to twelve months.”
Wilson has been downbeat on stocks for several months and has previously warned that the market could see the worst profits slump since 2008. This is because, in his opinion, corporations have not slashed costs sufficiently to overcome the headwinds and the Fed is expected to maintain high interest rates through 2023, which weighs on stocks through an increase in the cost of borrowing.
This has been made worse by the recent instability brought on by Silicon Valley Bank’s failure, which has spurred worries about more bank contagion and increased the likelihood of recession.
Wilson continued, “With the recent developments, we think guidance is becoming more and more unachievable, and equity markets are at greater danger of pricing in substantially lower forecasts ahead of any hard data revisions.”
The bear market’s final leg is just around the horizon, according to the bad performance of low-quality and small-cap companies, he noted.
Prior to this, he said that stocks were in the “death zone” and foresaw a 26% decline in stock prices when the bear market came to an end. Some other market pessimists, such as “Dr. Doom” Nouriel Roubini, who forecast a 30% decline in stock prices, have echoed his predictions.