Equities Selloff Isn't Over Yet, Stay Defensive and Prepare for S&P 500 Below 4,000 - Morgan Stanley's Wilson

January 25, 2022 5:47 AM EST
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Morgan Stanley’s Mike Wilson warned investors that the S&P 500 may see a 10% slump in the future in spite of Monday’s buying frenzy.

Wilson said investors might be playing with fire as the ongoing events including tightening Federal Reserve and weak growth could easily affect stocks.

“This type of action is just not comforting. I don’t think anybody is going home feeling like they’ve got this thing nailed even if they bought the lows,” Wilson, the Chief U.S. Equity Strategist and Chief Investment Officer for Morgan Stanley, told CNBC.

An intraday reversal of this scale did not occur at Wall Street since the financial crisis in 2008. During Monday trading, the Nasdaq recovered from a 4% drop and the Dow Jones was down 3.25% at its low, while the blue-chip index plunged 1,015 points.

However, all of the Nasdaq, Dow, and S&P 500 made a sharp recovery, closing the session in the green.

Despite yesterday’s developments, Wilson is not very optimistic regarding Wall Street’s near future. Morgan Stanley’s chief U.S. equity strategist and chief investment officer expects a significant price drop over the following three to four weeks in anticipation of worse-than-expected earnings reports and guidance.

“I need something below 4,000 to get really constructive,” said Wilson. “I do think that’ll happen.”

Wilson advises investors to “double down” on defensive trades to protect themselves from the anticipated price drops. He believes that each of the S&P 500 groups will face challenges due to current frothiness and is making decisions on a stock-by-stock basis.

“We’re not making a big bet on cyclicals here like we were a year ago because growth is decelerating. People got a little too excited on these cyclical parts of the market, and we think that’s wrong-footed,” he said. “There’s going to be a payback in demand this year. We do think margins are a potential issue.”

Wilson also voiced his skepticism regarding the Fed’s two-day policy meeting as he doubts it will ease investors’ worries.

By Senad Karaahmetovic | [email protected]

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