Investors should take advantage of this recent market rally while it lasts, said Michael Wilson of Morgan Stanley. The Wall Street firm’s chief U.S. equity strategist believes the recent rally, which follows the Federal Reserve’s aggressive action to curb inflation, won’t last long as corporate profits are expected to start to pick up. deteriorate. “As the bond market begins to assume that they have inflation under control, this may come with a higher than normal cost, potentially a recession as they tighten further, which may leave a very small window for stocks to work before earnings surprise on the downside,” Wilson said in a note to clients. “We believe that window is now, but it may close quickly. The reward for risk is low after the recent rally, so trade accordingly as time may run out,” he added. The S&P 500 just had its best month since November 2020, gaining more than 9% in July, as investors’ fears over the aggressive pace of rate hikes began to fade and they bet inflation may have peaked July’s rally followed an 8% selloff in June. Wilson, one of Wall Street’s biggest bears, said the earlier decline in stocks did not fully reflect recession risk, as earnings typically fall much more drastically in a downturn.” recession were rife during this selloff and valuations hit our P/E target of 15.4x, we don’t think he correctly factored in the damage to earnings that will result if we are real ment in recession right now,” Wilson said. . In the event of an economic downturn, the benchmark for stocks could fall toward 3,000, about 27% below Friday’s close, Wilson said. He added that the S&P 500 could bottom between 3,400 and 3,500 if the United States avoided a recession. The benchmark hit a low of 3,636.87 on June 17. – CNBC’s Michael Bloom contributed to this report.
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