One of the biggest skeptics in the market is going back to his old ways.
Morgan Stanley strategist Mike Wilson Be warned that the rally that has enveloped the markets in recent weeks is long in the teeth and it is too late to get a break.
“As expected, lower interest rates on the back end resulted in modest, modest gains for this bear market rally,” Wilson wrote in a new note on Monday. However, with last week’s price action, the S&P 500 is now within our original tactical target range of 4,000 to 4,150. While the index has modestly surpassed the 200-day moving average and the range has continued to widen, the downtrend from the start of the year is not That makes the risk-reward play for further upside very thin at this point, and we are now sellers again.”
Several weeks ago, Wilson correctly predicted a market bounce. And after a rough year for investors, the rally was very welcome.
S&P 500 Index (^ The Salafist Group for Preaching and Combat) and the Nasdaq Composite (^ ix(rising more than 6% and 7%, respectively, in the past month, while the Dow Jones Industrial Average)^ DJI) by 5%.
The gains were driven by a weaker US dollar, signs of peaking inflation, and the Federal Reserve which may be about to slow the pace of interest rate hikes.
But last week’s hotter-than-expected November jobs report – which calls into question the possibility of a more dovish Fed – and renewed COVID-19 lockdowns in China dampened that bullish theory.
“Stay defensive (health care, utilities, commodities) as rates are likely to fall further next year as growth and inflation continue to slow,” Wilson advised. “Growth stocks are unlikely to benefit from lower rates from here given the risk to earnings, especially for consumer and technology-oriented businesses that are heavy weights in growth indicators.”
Other Wall Street strategists are also cautious about stocks through the end of 2022.
Goldman Sachs said Don’t expect earnings growth for S&P 500 companies next year and no benchmark index to rise.
“We remain relatively defensive on the three-month horizon with further headwinds from higher potential real earnings and continued uncertainty around growth,” said Christian Mueller-Glesmann, strategist at Goldman Sachs.
Brian Suzy It is a comprehensive editor and Anchor at Yahoo Finance. Follow Suzy on Twitter @employee and on linkedin.
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