Two weeks after Morgan Stanley’s chief equity strategist Michael Wilson ominously warned that US capital markets have “hit the tipping point” – just days before a furious drop in the S&P – and predicted that the US stock market is set to peak some time in December…
… while cautioning that when looking at the Equity Risk Premium, the S&P 500 is once again overvalued relative to the 10Y yield…
… on Monday, the Morgan Stanley chief equity strategist targeted recent calls by the likes of JPMorgan’s Marko Kolanovic, who not once but twice in one week predicted that with selling pressure at systematic funds having been exhausted, stocks are set for a big rebound, said that… this won’t happen.
Commenting on the sharp moves observed last week, especially Tuesday’s 500+ point Dow jump, Wilson notes that “last week saw the US Equity market rebound sharply from the prior week’s sell off” and categorizes the sharp move higher as “a dead cat bounce with the downtrend resuming on Thursday.”
To justify his thesis, Wilson writes that his preferred explanation of recent market moves, namely the “rolling bear market” has “unfinished business with the S&P” and two weeks after “the rolling bear market made its latest and loudest statement yet by attacking this bull market’s darlings – Growth stocks, concentrated in the US Technology and Consumer Discretionary sectors” it is going for the overall market itself.
And speaking of the recent hammering of growth stocks, Wilson notes that “this caused much more portfolio pain than what the rolling bear did earlier in the year because this is where portfolios are exposed.“
As a result, we now hear more clients acknowledging our Rolling Bear Market narrative.
For those following Wilson’s rolling bear market thesis, this also means that as of the end of last week, “the rolling bear has now hit virtually every major asset class and the S&P 500 is the final holdout, beating the CPI year to date.”
Looking at the chart above, in which the S&P remains the only holdout from the “rolling bear market” mauling, Wilson concludes that “to the chagrin of many, we think the S&P will eventually succumb, too, and probably soon” and,adds that a definitive break of the S&P 500 through its 200 day moving average will serve as confirmation that the latest dead cat bounce is finally over.
We look forward to Marko Kolanovic’s “btfd” response.
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