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There is more pain in the pain business ahead.
That's what Michael Wilson, Morgan Stanley's chief US equity strategist, said in an interview with CNBC on Thursday that the current market rally is hiding a market that is badly damaged and ready to dive further.
Wilson describes the current situation as a "bear market", which began in February, and predicted that the S & P 500 index
SPX, + 1.86%
could fall between 2,450 and 2,500. This represents a decline of approximately 7.2% to 9% from current levels of the market benchmark. "And we think we'll get them in four to eight weeks," Wilson said.
Morgan Stanley defines a bear market as a sale of 20% or more, with no recovery after 12 months.
"The risk / reward remains unattractive to us," he said. Morgan Stanley's analyst added that the current stock decline that canceled the cumulative return of the S & P 500 index and the Dow Jones Industrial Average.
DJIA, + 1.63%
in a powerful move lower on Wednesday, "may last a little longer".
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Wilson said the "bear market" is taking shape is fueled by the evaporation of global liquidity as the Federal Reserve and central banks move away from the monetary policy of the crisis and are trying to normalize their respective economies. He said that "a lot of damage" had been done and that 80% of the rout could be complete.
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In September, Wilson was making disturbing calls even as US stocks were recovering from their February corrections, where the S & P 500 index and the Dow Jones index had dropped 10% from the peak reached at the end of January.
At that time, Wilson highlighted the divergence of credit spreads and equity values as early evidence of a change in market tone.
"Discrepancies between stock markets and credit spreads may also persist longer than one can bear before resolving. In the end, they tell us clearly that good weather may not be the right prediction, "Wilson said in a September note.
In July, Wilson had predicted that the market would suffer its biggest correction in months. The rally showed signs of "exhaustion". He wrote: "We estimate that the sale is starting the biggest since the one we had in February."
He warned that the coming economic downturn could disproportionately affect investors heavily weighted by technology and internet-related names, including some of the so-called FAANG names that have been at the center of the recent uptrend in the market. because of their advances. up to date and their total weight in the market. FAANG is an acronym for popular large-cap technology stocks, such as Facebook Inc.
FB + 3.36%
Apple Inc.
AAPL, + 2.21%
Amazon.com Inc.
AMZN, + 6.86%
Netflix Inc.
NFLX, + 3.66%
and Google-parent Alphabet Inc.
GOOGL, + 4.37%
Thursday, the Nasdaq composite index, laden with technology,
COMP + 2.95%
which fell on Wednesday in correction territory, recorded the largest rebound among the benchmark indexes, up 2.5%, after a fall of more than 4%, which represents its worst decline in a single session since the August 18, 2011, according to data from FactSet.
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But if Wilson is right, investors are not out of the woods yet.
The trade confrontation between China and China, which is starting to be discussed more frequently by US corporate executives, is one of the factors that market players point to as a critical catalyst for the current decline.
Check out CNBC's video with Wilson here:
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