Last week we spoke about retail and the general public finally turning bullish after a nine-month rally. Today, Wall Street’s biggest bear is joining the party, saying he stuck with his pessimistic thesis for too long. 🏳️
A bearish call made Morgan Stanley’s chief U.S. equity strategist Mike Wilson a hero last year. But a failure to recognize the changing tide has left him in a tough position. 😬
For most of this year, he’s been sticking with his bearish view due to valuations, a weakening fundamental backdrop, and thin market breadth. In May, he said, “This is what bear markets do: they’re designed to fool you, confuse you, make you do things you don’t want to do, chase things at the wrong time and probably sell them at the wrong time.” 🐻
Since then, the S&P 500’s prices broke above the 4,200 resistance level he referenced and have rallied another 8%.
Today, Wilson wrote to clients saying, “We were wrong. 2023 has been a story of higher valuations than we expected amid falling inflation and cost-cutting.” With that said, he and his team are not turning full-on bullish. Instead, they’re looking ahead to June next year, where they expect the S&P 500 to be 4,200. That would represent a roughly 8% decline from current levels. 😔
Ultimately, they remain cautious about corporate America’s earnings power. Most of the recent rally has been driven by multiple expansion, not profit growth. And while lower inflation likely means looser monetary policy, it also means less pricing power for businesses. 🔻
Time will tell whether the pessimistic earnings outlook comes to fruition. But for now, Wilson has to bow to the power of price and adjust accordingly.
In the meantime, traders wonder whether his throwing in the proverbial towel could signal a short-term price top. We’ll have to wait and see. 🤔
