Morgan Stanley Says US Stocks Likely to See Bearish Markets

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Stocks are crashing, and Morgan Stanley is warning investors the journey will only get more complicated.

On Monday, equity strategists headed by Mike Wilson at Morgan Stanley wrote that investors have “very few places to hide” in markets currently, as even defensive stocks have given in to pressure as of late.”

“The market has been so picked over at this point; it’s not clear where the next rotation lies,” Wilson said. “In our experience, when that happens, it usually means the overall index is about to fall sharply with almost all stocks falling in unison.” 

The markets may be entering into “a much broader sell-off phase.” It could mean that the S&P 500 will approach a 20% fall from former highs. Furthermore, the latest trading suggests this upcoming bear market is likely.

The Federal Reserve has been on a hawkish path to counter inflation, and it seems that this week’s stock market drop – counting a fall of almost 1,000 points on the Dow solely on Friday – was primarily caused by worries about inflation.

Counting in the significant plummet on Monday, the S&P 500 shed 12% of its value on Monday from the record high in early January.

The S&P 500, which tracks the performance of America’s biggest companies by market value and includes hundreds of US stocks from various industries in its portfolio, has seen bullish progress over two years since March 2020, when the Federal Reserve pulled it up amid a rough decline due to the COVID-19 pandemic. 

However, Nasdaq has entered a bear market as oil prices soar and inflation concerns pile up.

Morgan Stanley stated that the closing chapter is a “fast tightening Fed right into the teeth of slowdown.” 

On the other hand, some are under the perception that inflation’s risks to both the stock market and economy will bring a positive impact.

“Inflation should ease from current levels, and we do not expect a recession from rising interest rates,” said chief investment officer at UBS Global Wealth Management, Mark Haefele, in a note to clients on Monday. 

A few economists are optimistic that inflation may be ultimately at or almost at its peak.