One of the most important strategists warns that stocks are illogically highly valued and the last thread is about to…
Many people expect growth to continue after a good start to the year. But according to one of Wall Street's best-known strategists, such a scenario is out of the question and, moreover, it is necessary to act quickly before the turnaround comes.
Investors are now divided into two camps. Either they are extremely positive and expect further growth, or they fear disaster. In either case, they are running out of time to save yields from the risk of a catastrophic end, warned a Morgan Stanley $MS+2.0% strategist .
Mike Wilson' s gloomy prediction comes at a time when the S&P 500 index continues to rise, up many percent since its October low, and YTD is currently still 4% in the black even after a slight decline. Morgan Stanley's chief investment officer, who was voted the No. 1 stock strategist in Institutional Investor magazine's October survey , fears the worst.
Wilson argued that the benchmark stock index is in the financial equivalent of the "death zone," a term used by mountaineers to refer to altitudes where oxygen is no longer enough to sustain human life for extended periods of time. And it generally revels in mountaineering comparisons.
"Whether out of choice or necessity, investors have once again pushed stock prices to dizzying heights because liquidity (bottled oxygen) allows them to climb to an area where they know they shouldn't go and can't live very long," Wilson wrote.
"They climb in pursuit of the ultimate peak out of greed and assume they will be able to climb out without catastrophic consequences. But oxygen will eventually run out, and those who ignore the risks will get hurt."
By Wilson's estimate, the price-to-earnings ratio of the S&P 500 index had already risen to 18 at the end of last year from just 15 in October. The index, he says, has now climbed to heights where the air is the most liquid since the bull market began in 2009, with its P/E ratio currently at 18.6.
Instead of taking the rising valuations as a sign that "the air has begun to thin" and they have calmed down, investors have taken an even more dangerous route , according to Wilson, and bet on the most speculative stocks. Wilson is no stranger to his catastrophic scenarios coming true. The inveterate bear correctly predicted last year's selloff, when U.S. stocks posted their worst performance since the global financial crisis.
Earlier this month, Wilson issued another pessimistic forecast, warning that the stock market would bottom this spring before bouncing off the bottom in the second half of the year. He predicted that even after a late recovery, the S&P 500 index would notch up negligible gains for this year, ending at 3,900 points o and indeed that final figure was as high as 3,839 points in December 2022.
In his report, he warned that optimism based on a pause in the Fed's rate hike cycle and confidence around a soft landing for the US economy would prove to be a mere illusion sustained by the $6 trillion of fresh liquidity pumped into the economy by global central banks since October.
"As investors have reached even higher levels, there is now talk of a 'no landing' scenario - whatever that means," he wrote. "Such are the tricks the death zone plays on the mind - one begins to see and believe things that don't exist."
Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.