Morgan Stanley strategists have issued a dire warning to investors that U.S. stocks have climbed to unsustainable highs and are on the verge of imminent losses. Chief U.S. equity strategist Michael Wilson, known for his bearish predictions, has declared that the stock market has reached the “death zone” – a term used in mountaineering to describe an altitude so high that climbers cannot breathe due to the lack of oxygen.
Wilson’s latest analyst note compares equity investors’ current situation to high-altitude mountaineering, where many fatalities have occurred due to the death zone, either directly or indirectly. Wilson predicts that the S&P 500 could plummet to 3,000 points within months, marking a decline of approximately 26% from current levels.
According to Wilson, it’s time for investors to head back to base camp before the next earnings guide down. This bleak forecast comes on the heels of a brutal year for the stock market, its worst since the 2008 financial crisis. All three indexes experienced significant declines in 2022, breaking a three-year winning streak. The Dow Jones Industrial Average performed the best of the three, ending the year down 8.8%. The S&P 500 sank 19.4%, and the Nasdaq Composite plummeted 33.1%.
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Despite initial gains in early 2023, equities have lost momentum amid rate-hike fears. As of Tuesday afternoon, the S&P 500 is up about 4.5% from the beginning of the year but down about 3.55% from the previous week.
Wilson is not the only one with a bearish outlook. Bank of America chief economist Michael Hartnett predicts that a “no landing” scenario in the first half of the year, where there is no immediate slowdown in growth, but inflation remains above trend, could deal a severe blow to stocks, causing the S&P 500 to drop another 7%. JPMorgan strategist Mislav Matejka also believes that equities will not reach the bottom until the Federal Reserve concludes its aggressive interest-rate hike campaign and starts cutting.
Federal Reserve policymakers have already voted to raise interest rates eight consecutive times, bringing the range to 4.5% to 4.75%, and they have indicated that there could be a “couple more” increases this year. However, a series of better-than-expected economic data reports, such as the January jobs report and a disappointing inflation report indicating the pervasiveness of high consumer prices has raised concerns about a higher peak rate.