© Reuters. MS Wilson sees rising expectations for hot CPI print, next leg lower could start
By Senad Karaahmetovic
The price action does not reflect worsening fundamentals, Morgan Stanley strategists told clients in their regular weekly note.
It does not reflect the fact that the Federal Reserve is rising during an earnings recession. Deteriorating fundamentals and earnings recession are likely to push US stocks towards “the lows of this bear market later this spring.”
“We believe the risk-reward ratio is as poor as it has been at any time during this bear market,” the strategists wrote.
The Fed pause does not come and the market is wrong to try to price it. This is the second time the market has made such a mistake after a similar failed attempt last July, the strategists added.
“The industry’s year-to-date leadership (driven by technology and growth) appears aligned with last summer’s bear market rally, when premature hope for a Fed pivot was the underlying narrative. The key differences this time around are that the earnings picture is much worse with forward EPS now negative year-over-year and risk premia even richer.”
On what could start the next leg down, strategists point to a possible hotter-than-expected release this week.
“We recognize the growing expectation of a result above consensus,” they warned.
