WISCONSIN (CoinChapter.com) — Morgan Stanley warned that the current stock market rally might not be a rally at all – for the moment.
The investment banking giant said the unexpected uptick in the US stock market at the beginning of 2023 would likely fade after the Federal Reserve raised interest rates for the eighth straight time last week.
Wall Street bear Michael Wilson, the head of Morgan Stanley’s US equity strategy, issued the following warning: “Despite recent market resiliency, the reality is expected to arrive with month end and the Fed’s drive to manage inflation.”
Following a brutal end to December and a cruel year, Wilson observed, “We think the recent price activity is more a result of the seasonal January effect and short covering after a bad end to December.”
He has previously predicted that the S&P 500 Index will decline by around 25% by year’s end to 3,000 points. In 2022, the benchmark index had already decreased by approximately 19%.
Don’t Get Caught Up in FOMO
As a result of their fear of missing out, more investors have joined the relief rally. Still, it is not likely to last for very long, given how negatively the reduction in inflation impacts corporate profitability.
Goldman Sachs Analysts Agree With Morgan Stanley
Goldman Sachs analysts also feel the rally may lose steam; the firm’s analysts predicted that the S&P 500 might fall 22% this year if the economy enters a recession. Moreover, Goldman’s strategists forecast a further 10% decline in stock prices even in the absence of a downturn.
Were Investors Too Optimistic Too Early?
Morgan Stanley offers some optimism for investors; they believe that the bear market will eventually conclude later this quarter or early next. But the main problem for bulls was their steadfast belief that inflation would swiftly decline and the Fed would relent – a theory that was never more than wishful thinking.
Many participants are confident that the US Federal Reserve will achieve the crucial soft landing (bringing inflation down without bursting the labor market). The idea holds that companies will still be able to provide marginal earnings growth should a soft landing occur.
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