One of the biggest market skeptics is going back to old ways.
Morgan Stanley strategist Mike Wilson has warned that the rally that has enveloped markets in recent weeks is long in the tooth and overdue for a break.
“As expected, lower interest rates at the end resulted in modest additional gains for this bear market rally,” Wilson wrote in a new note on Monday. “However, with the price action of the past week, the S&P 500 is now within our initial tactical target range of 4000-4150. continues to expand, the downtrend since the start of the year remains in place.This makes the risk-reward of playing for more potential quite low at this point, and we are selling again.
Several weeks ago, Wilson correctly predicted the market rebound. And after a brutal year for investors, the rally was well received.
The S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) are up more than 6% and 7%, respectively, over the past month, while the Dow Jones Industrial Average (^DJI) climbed 5%.
Gains were boosted by a weaker US dollar, signs of spike in inflation and a Federal Reserve that may be on the verge of slowing the pace of interest rate hikes.
But a warmer-than-expected November jobs report last week — which calls into question the potential for a more dovish Fed — and China’s new COVID-19 shutdowns have shaken that bullish thesis.
“Stay defensively oriented (healthcare, utilities, commodities) as rates are expected to fall further next year as growth and inflation continue to slow,” Wilson advised. “Growth stocks are unlikely to benefit from lower rates from here, given the risk to earnings, especially for tech and consumer-focused companies, which weigh heavily in stock indices. growth.”
Other Wall Street strategists also remain cautious on stocks to end 2022.
Goldman Sachs said it expects zero earnings growth for S&P 500 companies next year and zero appreciation for the benchmark.
“We remain relatively defensive on the three-month horizon with further headwinds from the likely rise in real yields and continued growth uncertainty,” said Christian Mueller-Glissmann, strategist at Goldman Sachs.
Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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