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Market spike after Fed hike is ‘trap’, Morgan Stanley warns investors


Morgan Stanley is urging investors against pouring their money into stocks despite the post-Fed market jump.

Mike Wilson, the company’s director of US equity strategy and chief investment officer, said he believes Wall Street’s excitement about the idea that rate hikes may slow down sooner than expected too early and problematic.

“The market always recovers once the Fed stops raising until the recession starts.… [But] It is unlikely that there will be much of a gap this time between the end of the Fed’s bull campaign and the recession,he told CNBC’s “Quick money“on Wednesday.” In the end, this will be a trap. “

According to Wilson, the most pressing issues are the impact of the recession on corporate earnings and the risk of the Fed tightening too much.

“The market has been a bit stronger than you might think because the bullish signals have always been negative,” he said. “Even the bond market is now starting to buy into the fact that the Fed will probably go too far and push us into a recession.”

‘Near the end’

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

His forecast also includes a call for the market to fall one more step before hitting its year-end target. Wilson is bracing for the S&P to drop below 3,636, a 52-week low hit last month.

“We’re getting close to the end,” Wilson said. “I mean, this bear market has been going on for a while.” “But the point is it won’t drop, and we need to make the last move, and I don’t think the June low is the last move.”

Wilson believes the S&P 500 could drop to as low as 3,000 in the 2022 recession scenario.

“It’s really important to frame every investment in terms of ‘Your pros versus your cons,’” ​​he says. “You’re taking a lot of risk here to achieve whatever’s left on the table. And, to me, that’s not an investment.”

Wilson considers himself Position carefully – note that he has light stock and enjoys defensive play that includes health care, REITs, consumer staples and utilities. He also sees the value of keeping extra cash and bonds now.

And, he wasn’t in a hurry to put money into work and was “hanging out” until the stock showed signs of bottoming out.

“We’re trying to give them [clients] a good risk reward. Now, the risk-reward, I would say, is negative about 10 to one,” Wilson said. It’s not very big. “

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