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Stocks 'disconnected from reality'; Morgan Stanley screens those 'unfairly punished'
Feb. 13, 2023 11:43 AM ETS
By: Kim Khan, SA News Editor
The stock market stumbled again trying to price in a Fed pivot that is still a ways away, according to the equity team at Morgan Stanley.
Morgan Stanley strategist Mike Wilson, who nailed the bear market call in 2022, says the lows for stocks (IVV) (VOO) (SPXU) (UPRO) (SPXL) (SSO) won't arrive until late spring, with risk-reward "as poor as it's been in our view."
Kirk Comment: VOO is Vanguard's S&P 500 ETF
"Back in late July we hypothesized that the market was trying to price a Fed pivot that wasn't ultimately coming any time soon," Wilson wrote in a note. "It appears equities may have just made the same mistake again as sector leadership YTD (driven by Tech (XLK) (XLC) (XLY) and Growth (QQQ) (ARKK) (PTF) (MEME)) looks aligned with last summer's bear market rally when premature hope for a Fed pivot was the underlying narrative."
"Thus, with hope for a Fed pivot now dwindling and fundamentals deteriorating further, price is about as disconnected from reality as it's been during this bear market." (Emphasis added).
and
"From a technical standpoint (charts) show the key trendline resistance we have been watching for the S&P 500 (SP500) (NYSEARCA:SPY)," Wilson added. "This is a critical resistance/support line that goes back to the beginning of the secular bull market that began after the Great Financial Crisis."
"After briefly breaking above this resistance 2 weeks ago, the S&P 500 has fallen below once again and appears to be vulnerable to the bear market resuming just as the consensus has given up on the timing," he said. "In other words, investors need to be ready for the cyclical bear to reassert its primary trend immediately."
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