Michael Wilson on the market: the worst is behind us

Morgan Stanley’s famed bear turns bullish about the market

Morgan Stanleys famed bear turns bullish                                 

One of the most vocal bears on Wall Street in recent years has now turned bullish arguing that the current market provides “the most attractive valuation we have seen since 2011.”

Michael Wilson, chief investment officer and chief US equity strategist for Morgan Stanley (MS), recognised the “extreme volatility” of the past month which saw “a full bear market, down 20 per cent, and a full bull market, up 20 per cent”, as well as the severe recession triggered by the COVID-19 pandemic.

He said: “That’s the bad news. The good news is that crises lead to bailouts and this time is no different.”

To blunt the impact of the near-nationwide lockdown, Washington has passed a record $2tr stimulus package to bolster the US economy. Meanwhile, the Federal Reserve has slashed interest rates to zero and launched a major programme of quantitative easing.

Noting the “extreme response from the Fed and Congress”, Wilson stated that Morgan Stanley envisions “less pain than normal for these bad actors”, adding: “This is one reason why we have been getting more bullish in the past few weeks, though the economic and earnings data are likely to remain bad and even get worse.”

Reflation for the world

A likely consequence of the Fed’s intervention, according to Wilson, will be “reflation not only for the US, but also for the world”. In his eyes the “dramatic shift in US fiscal and monetary policy... should lead to a materially weaker dollar”. This central bank stimulus could also coincide with a “possible deregulation of the banks to get the cash into the hands of lower income individuals and small businesses that are inclined to spend it”.

Countering the likes of Goldman Sachs (GS), who have described a recent rally in stocks as little more than a “dead cat bounce”, Wilson instead argued that “the worst is behind us for this cyclical bear market that began two years ago, not last month”.

Ironically for Wilson, though he had been one of the most vocal and most ardent bears of the past two years, he relented slightly at the end of 2019, raising his S&P “bull case” price target, while still adding a number of warnings.

The lack of such cautions and provisions in his recent statements, underlines the sincerity and forcefulness of Wilson’s newfound bullishness, which is further underlined by his exhortation that colleagues remember the “old adage of ‘never let a good crisis go to waste’”.

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