Morgan Stanley Strategist Issues Macro Warning to Traders, Says Investors Are Being Fooled by Rise in Liquidity

Morgan Stanley’s chief US fairness strategist Mike Wilson warns that markets are nonetheless in a bearish cycle and traders are being fooled by a spike in liquidity.

In a brand new Bloomberg Tv interview, Wilson predicts that equities will end out the yr weaker than they’re buying and selling at right this moment resulting from hostile macroeconomic fundamentals.

He says an injection of recent liquidity from the Federal Reserve’s emergency mortgage program established to rescue collapsing banks is propping up the markets and deceptive traders.

The Enterprise Commonplace reported in March that the FED’s Financial institution Time period Funding Program may inject as a lot as $2 trillion into the US banking system to ease the liquidity crunch.

Says Wilson,

“We expect the overriding driver of this yr’s rally has been elevated liquidity. Liquidity has improved dramatically, each on a world scale, and a weaker greenback has helped, that’s going the mistaken approach now once more. After which, after all, satirically, the banking failures that occurred in March led to an injection of liquidity from the FDIC (Federal Deposit Insurance coverage Company) and the Fed. And we expect these issues have conspired to drive the market.”

Wilson additionally says that the rise in market liquidity is basically evident on this yr’s sturdy efficiency of cryptocurrencies and tech shares.

Nonetheless, he doesn’t consider that the market fundamentals are there to help a continued rally, and he predicts a market dip to complete out the second half of the yr.

“No one talks about the truth that crypto is up 60% this yr. After which the subsequent one, after all, is the tech world. So that is what’s occurring. We expect that the elemental case doesn’t help the place shares are buying and selling right this moment, whether or not it’s on the index degree or the one inventory degree and the second half goes to be a bit choppier and possibly downward within the index.”

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