Morgan Stanley strategist Michael Wilson is returning to the bear camp.
The strategist, one of the US stock market’s most vocal skeptics, has seen enough of the recent rally that he’d predicted and says investors are better off booking profits.
“We are now sellers again,” the strategist and his colleagues wrote in a note on Monday. They expect the S&P 500 to resume declines after the index crossed above its 200-day moving average last week, saying the downtrend since the beginning of the year remains intact. “This makes the risk-reward of playing for more upside quite poor at this point,” they wrote.
The call marks a shift in Wilson’s view as recently as last week, when he said the tactical recovery could continue into December before coming under pressure from weaker corporate earnings next year. The strategist -- who ranked No. 1 in the latest Institutional Investor survey -- said on Monday he now sees “absolute upside” for the S&P 500 at 4,150 points -- about 2% above current levels -- which could be achieved “over the next week or so.”
US stock futures slipped 0.4% on Monday after the S&P 500 posted a second straight week of gains.
Wilson isn’t alone in his pessimistic view of US stocks for early next year. Peers at JPMorgan Chase & Co. and Goldman Sachs Group Inc. have also warned of fresh declines as investors price in the risk of a recession. Deutsche Bank AG’s Binky Chadha sees the S&P 500 rallying into the first quarter, but then slumping as much as 33% in the third quarter before hitting a bottom.
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With both economic growth and inflation cooling next year, Wilson recommends retaining a defensive positioning in health care, utilities and consumer staples stocks. Growth stocks, which generally benefit from lower rates, are unlikely to see much of a boost in 2023 given the risk to corporate profits, he wrote.
