Market jump after Fed lifted ‘trap’, Morgan Stanley warns investors

Morgan Stanley is urging investors to resist putting their money in stocks despite the market jump after the Fed’s decision.

Mike Wilson, the company’s chief equity strategist and the company’s chief investment officer, said he thinks Wall Street’s excitement over the idea that rate hikes may slow sooner than expected is premature and problematic.

“The market always goes up once the Fed stops rising until a recession starts… [But] It is unlikely that there will be a huge gap this time between the end of the Fed’s hike campaign and the recession,He told CNBC’s “Fast Money” on Wednesday. “In the end, this will be a trap.”

According to Wilson, the most pressing issues are the impact of the economic slowdown on corporate earnings and the risk of excessive Fed tightening.

“The market has been a little bit stronger than you thought given the growth signals have been consistently negative,” he said. “Even the bond market is now starting to buy into the fact that the Fed may go too far and send us into a recession.”

near the end

Wilson has a 3,900 year-end price target on the S&P 500, one of the lowest on Wall Street. That means a 3% drop from Wednesday’s close and a 19% drop from the index’s closing high in January.

His forecast also includes a call for the market to take another step lower before reaching the year-end target. Wilson is preparing for the S&P to fall below 3,636, the 52-week low hit last month.

“We are nearing the end,” Wilson said. “I mean, this bear market has been going on for a while.” “But the problem is it won’t stop, and we need that final step, and I don’t think the June low is the last step.”

Wilson believes that the S&P 500 could drop to 3000 in the 2022 recession scenario.

“It’s really important to frame every investment in terms of ‘what’s your upside versus downside,'” he said. And for me, that’s not an investment.”

Wilson sees himself in a conservative position — noting that he underweights stocks and loves defensive plays including health care, REITs, consumer staples and utilities. He also sees the advantages of holding additional cash and bonds for now.

He is in no hurry to use the money for business and has been “on hold” until signs of a decline in stocks.

“We are trying to give them [clients] Good risk and reward. Right now, Wilson said, the risk-reward ratio is about 10 to negative one. “It’s not great.”

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