Sell the rip.
That’s the good word after the surprising rally in markets last week, argues one of Wall Street’s most vocal bears.
“Bottom line, last week was nothing more than a vicious bear market rally, in our view, and while it may not be completely finished, it is a rally to sell,” Morgan Stanley chief investment officer Mike Wilson said in a new note on Monday.
The closely followed strategist thinks there could be another leg lower in markets that persists until mid-April. He recommends getting more defensive in terms of portfolio positioning at the moment.
“With rates markets pricing in a very aggressive Fed pivot, the back end of the market looks full in our view. While this may alleviate some of the downward pressure on equity valuations, the equity risk premium looks far too low to us given the persistent volatility in financial markets, one of the more unstable geopolitical environments we’ve ever witnessed and rising risk for growth, especially earnings,” Wilson added.
Markets are coming off a stunning rally last week, which arrived despite the Fed hiking interest rates for the first time since 2018 and the Russia-Ukraine crisis raging on.
The S&P 500 rallied 6.2% on the week while the Nasdaq Composite tacked on 8.2%. The Dow Jones Industrial Average advanced 5.5%.
Stocks gave back some of their gains Monday, but still remain well off the lows hit earlier this month when Russia began its invasion of Ukraine.
Morgan Stanley’s Wilson isn’t flying solo in his call that last week’s relief rally was overdone.
“While we are fully open to some continued strength into the spring consistent with seasonality, we are not yet ready to definitively say the final lows have been made. Even if the bottom is in, there is likely to be a period of digestion, which means patience will be paramount. Rates and commodities continue to press higher, and while the overall market appears to be more comfortable with that in the near-term, those trends should benefit value more than growth,” said Evercore ISI technical strategist Jonathan Krinksy.