Mike Wilson, Morgan Stanley’s chief US equity strategist, warns that markets are still in a bearish cycle and investors are being fooled by a spike in liquidity.
In a new interview with Bloomberg Television, Wilson says predicts that equities will end the year weaker than they are currently trading due to unfavorable macroeconomic fundamentals.
He says an injection of new liquidity from the Federal Reserve’s bailout program, designed to bail out collapsing banks, is propelling markets and misleading investors.
The business standard reported in March that the FED’s Bank Term Funding Program could inject as much as $2 trillion into the US banking system to alleviate the liquidity crisis.
says Wilson,
“We think the main driver of this year’s rally has been increased liquidity. Liquidity has improved dramatically both globally and a weaker dollar has helped, which is now going the wrong way again. And then, of course, ironically, the bank failures that happened in March led to a liquidity injection from the FDIC (Federal Deposit Insurance Corporation) and the Fed. And we think those things conspired to drive the market.”
Wilson also says the surge in market liquidity is largely evident in the strong performance of cryptocurrencies and technology stocks this year.
However, he doesn’t believe the market fundamentals are there to support a sustained rally, and he predicts a market decline to wrap up the second half of the year.
“No one is talking about the fact that crypto is up 60% this year. And then next, of course, is the tech world. So this is what’s going on. We think the fundamental case doesn’t support where stocks are trading today, whether it’s at the index level or at the single-stock level, and the second half is going to be a little bit more choppy and probably down in the index.
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