Why Morgan Stanley Thinks The S&P Is About To Crash

Kevin Mwanza
Written by Kevin Mwanza

Global investment firm Morgan Stanley says the S&P 500 could be headed for a crash after reaching a new record high last Friday on “wishful thinking” that a Federal Reserve rate cut will be enough to spark another rally.

“We think this latest surge will fail again, as we don’t expect a Fed cut to rekindle growth the way market participants may be hoping, and now pricing,” said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist and chief investment officer, in a note to clients.

Wilson said the fundamentals were too weak to maintain the rally and a market correction was more likely than a push above the 3,000-point ceiling that index has failed to breach three times in the last 18 months.

Morgan Stanley
Mike Wilson, Morgan Stanley’s chief U.S. equity strategist and chief investment officer, is concerned that the S&P 500 may be headed for a crash.

The last two times were followed by a market correction and this time is no different, he said.

Listen to GHOGH with Jamarlin Martin | Episode 64: Tunde Ogunlana

Part 1: Jamarlin talks to Tunde Ogunlana, the CEO of Axial Family Advisors, a wealth planning firm. We discuss what an inverted yield curve usually means in the bond market and why Federal Reserve Chair Jerome Powell can’t tell the public the truth when he sees big trouble on the horizon. We also discuss the global economy being trapped between massive debt and a starting place of low rates at the end of the economic cycle. This episode was recorded on May 29, 2019.

The S&P 500 stock index, which includes the 500 largest companies listed on the New York Stock Exchange, NASDAQ, or the Cboe BZX Exchange, has had its best performance during the first seven months of the year since 1997, according to Market Watch.

Morgan Stanley is, however, predicting that the stock index is about to hit a major iceberg despite an expected rate cut of a quarter of a percent by the central bank, which it says may not be enough.

“We remain of the view that the consensus S&P 500 earnings forecasts are still materially too high for both the second half of 2019 and 2020 and think the Fed’s expected rate cut next week should not be celebrated if it is accompanied by an earnings and possibly economic recession,” Wilson said.