According to Morgan Stanley strategist Mike Wilson, while unfavorable seasonal factors and an uncertain outlook may limit gains for U.S. stocks for the rest of the quarter, the likelihood of a full-blown stock market crash is low.
The strategist, who accurately predicted the recent decline in U.S. stocks in July, now says a major crash is unlikely as traders remain nervous following last week’s sell-off. The bullish view is in stark contrast to the bold bearish comments that have made Wilson famous in recent years.
Still, Wilson sees limited upside for the S&P 500 (SPX), predicting the benchmark index will hover between 5,000 and 5,400, which would mean a decline of about 7% from Tuesday's trading level at the lower end and roughly flat at the higher end.
Wilson expects the S&P 500 to fluctuate in the yellow zone
“I find it hard to believe that we’re going to go back to the highs,” he said in an interview with Bloomberg Television on Tuesday. “But I also don’t think we’re going to be so completely blown up that I think we’re entering a new bear market.”
Wilson said slowing growth, overly optimistic earnings expectations and the Federal Reserve’s “reluctance to proactively” cut interest rates combined to create a challenging backdrop for further gains in the S&P 500, which has already risen more than 13% this year.
Wilson sees opportunities in individual stocks, rather than broader indexes. He highlighted recommendations for buying so-called defensive stocks, a call that goes against the momentum trade that most investors continue to chase in tech stocks.
“It’s hard for me to get excited about stock indices, which is why we’re very focused on the individual stock and sector level to try to profit,” Wilson said, citing high valuations.
U.S. stocks have been hammered over the past month by concerns that the Federal Reserve's failure to cut interest rates quickly enough could tip the U.S. economy into a sharp slowdown. Last week, the S&P 500 had its best and worst trading days since 2022, before closing flat for the week.
On July 9, Wilson warned that a 10% correction was "highly likely." A week later, on July 16, the S&P 500 hit a new high and fell 8.5% before hitting its recent low on August 5. It has since recovered more than 4%.
U.S. stocks surged on Tuesday after data showed that U.S. producer price inflation for July came in below expectations, with the next big hurdle for traders coming in on Wednesday's CPI data.
The article is forwarded from: Jinshi Data
