"Think 1999": Morgan Stanley Sees Huge 30% Surge In Stocks "Investors Cannot Afford To Miss"

Tyler Durden's picture

With Morgan Stanley's Adam Parker having left the investment bank to continue his career at Eminence Capital, it was up to his replacement, Michael Wilson to come up with the Initiation of coverage report for the "Classic Late Cycle." So, in keeping a stiff upper lip, and breaking away from the gloom that appears to have recently gripped his colleagues over at Goldman Sachs, Wilson had no choice but to keep a stiff upper lip and keep the Punch Bowl full (to paraphrase Bill Dudley's famous March 30 speech).

So, projecting a remarkable dose of optimism at a time when dramatic changes are in store for not only the Fed's balance sheet but the global credit impulse which is now negative, Wilson, who until recently was Morgan Stanley's Chief Investment Officer of Wealth Management, writes that "although optimism is a late cycle phenomenon, history tells us the best returns often come at the end. It has taken eight long years to get here, but Wall and Main Street are finally starting to feel a bit better about the future."

What alse comes at the end is the crash, and those tend to make both Wall and Main Street feel a bit worse about not only the future but also the present.

In any case, the basis for MS' optimism is the economic recovery - which alas is entirely missing in the hard data, which tumbled after the NFP print to the lowest level in a year - and the Trump reflation euphoria - which the bank may have missed faded about a month ago and has been rapidly contracting to pre-election levels - and uses that to extrapolate a move as high as 3,000 in the S&P, or a 30% blow off top. 

Or, as Wilson puts it, "the end of the cycle is often the best. Think 1999 or 2006-07. In a low-return world, investors cannot afford to miss it." And while "not missing it", investors will preferably buy stocks using a Morgan Stanley broker,right?

And while we commiserate with Wilson for putting it all on the line in his first report, and timestamping his wildly bullish call in a report that will be passed around for years to come, especially if this is the top-tick, here is the summary of his outlook just to help with the .

The cyclical upturn that began a year ago has less to do with President Trump and more to do with the global business cycle that bottomed in 1Q2016. Trump simply “turbocharged” the cycle and stoked animal spirits on Wall and Main Street, with tangible effects on the real economy and markets. The title of our year-ahead outlook as CIO for Morgan Stanley Wealth Management on January 1st (see excerpt at end) was “Are You Ready for Euphoria?”– based on Sir John Templeton’s four stages of the investment cycle: "Bull markets are born in pessimism, grow in skepticism, mature in optimism and die in euphoria."

What follows next may be one of the most memorable, in retrospect lines, ever written in a research report:

The end of the cycle is often the best. Think 1999 or 2006-07. In a low-return world, investors cannot afford to miss it.

So... buy stocks just at the peak of the bubble, as was the case in both 1999 and 2007, and pray for the best? Don't worry, though, Morgan Stanley will tell you just when to sell, before it all crashes.  

Think 2000 and 2008.

The humor continues:

Equity valuation remains undemanding in a low interest rate world. Equity risk premiums (ERPs) have been exceptionally elevated in the post-crisis era of lower growth and inflation, but we may be leaving that era, which means ERPs can and should normalize. Our 12-month base case S&P 500 target is 2700.


Secular Stagnation may be over, further supporting our expectation for falling equity risk premiums. Productivity may have bottomed, fueled by the end of trends that caused the slower growth in the first place: consumer overindebtedness (housing), the oil bubble's tax on consumers, war on terror, demographics, and bad policy (regulation, lack of fiscal/monetary coordination).


Exceptionally loose financial conditions encourage the shift toward investor euphoria. Meanwhile, our proprietary institutional and retail data suggest US equity positioning is not extreme, and market technicals are in very good shape.

To all investor who can read that with a straight face, congratulations. And perhaps just to lend credibility to his forecast, here is the matrix of Wilson's recommendations, which sees a worst case of 2,100 in the S&P, a base case of 2,700, or over 300 points higher by EOD, and a blow off top forecast of not less then 3,000 or 30% higher from current levels.

And just to cement his "credibility", Wilson shows another chart demonstrating he is totally proficient with goalseeking in Excel sensitivity tables:

MS then narrows down its preferences to the following sectors:

Our sector/style preferences reflect our pro-risk, late-cycle thesis. Financials, Industrials, Energy, and Technology are all overweight. We are underweight Real Estate, Telecom, and Staples. We are neutral Health Care, Materials, Consumer Discretionary, and Utilities. We have a preference for small/mid caps.

An appropriate trade idea here would be to do the opposite of what MS recommends.

Perhaps most importantly, here is what Wilson believes are the risks to his call:


  1. We are late cycle and the Fed is further along than appreciated. This tightening cycle began in 2014 with the tapering of QE, which means there may be less headroom for actual rate hikes this cycle than assumed;
  2. Commercial Real Estate and Autos are canaries in the coal mine that could spill over into broader credit markets;
  3. Oil prices fall further and/or take longer than expected to recover—the Energy sector is the single largest incremental driver of S&P 500 earnings growth this year;
  4. ECB tapering is not expected but it could happen this summer when political risks diminish in Europe.

As an amusing aside, as part of his "initiating coverage" report, Wilson shares a brief comment "on what we endeavor to provide as Morgan Stanley's US Equity Strategist."

First, the role of US Equity Strategist at Morgan Stanley has quite a storied history. As a 27-year veteran of the firm, no one has more respect for that history or the position itself. We will do our best to live up to it. Second, our philosophy about equity markets is fairly simple – get the rate of change on earnings growth right; pay attention to valuation when it matters but don’t obsess over it; appreciate the importance of sentiment and positioning and always respect what the market is telling us. In short, trust one’s fundamental work, but verify it with the market's signals. Third, we only exist to serve you, our client. To that end, I hope that my dual role of US Equity Strategist and Chief Investment Officer, embedded in a best-in-class global Research Department and informed by a leading institutional equity and wealth management business, will provide the strategy team – and our clients - with unique and profitable insights.

Unique profitable insights like calling an up to 30% spike at a time when the market is currently trading at 20x forward operating earnings according to Goldman...

... a number which would rise to 25x under Morgan Stanley's bullish scenario.Clearly when Wilson  says "pay attention to valuation when it matters but don’t obsess over it" it is more focused on the latter.

Finally, while investors are welcome to trade like it is 1999, don't forget what happened just one year later...

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chicken_goose's picture

In other words they are over-exposed and want to dump their stock holdings onto the next bagholders. Nice try MS, but I'm not buying.

Ghost of PartysOver's picture

QE tossed all the historical norms down the crapper.  So why does everybody insist on using historical analysis?  It is all they got to justify their paychecks.  At

BullyDog's picture

It's a trap...


I'm long popcorn for the coming crash, infact I just bought a years physical supply.


Cheers boys.

adr's picture

We're crashing upwards.

Dead Canary's picture

It's a new paradigm, technology has changed the rules...


Buy real estate, houses never go down....


Oh fuck it. Buy stock because I said so.

Arnold's picture

New economic history began with Keynes.
Current economic history is figuring the current breakfast tip.

(How do I make 15% on the service I deliver.)

curbjob's picture


Translation =  Deutsche Bank looking cheap.

Hugs; Jim Cramer

GUS100CORRINA's picture

The only question I have about article is how they determine FAIR VALUE. My FAIR VALUE measurement for DOW is 16,000.

Other than the question of FAIR VALUE, what article is suggesting is entirely plausible because we are now in a period of insanity and irrationality which never ends well.

So party on like it is 1999. I think I might buy some TNA for starters along with other leveraged BULLISH ETFs.

TheReplacement's picture

Paging all bagholders, please pick up the white courtesy phone.

yogibear's picture

Just keep front running the central banksters with their infinite fiat.

They will undermine any competitive asset or currency that is deemed a threat. 

small axe's picture

Ramp Master Inc wants your money.

Giant Meteor's picture

Can't afford to miss it eh? Comedy gold ..

lo574's picture

Someone's gotta buy the top - may as well be us. lol

TabakLover's picture

Fuck this guy.   EOM.

redc1c4's picture

"here sucker sucker sucker...."

ZeroPoint's picture

Oh I can't wait for those cold calls to start up again with hot investment ideas.

adr's picture

We're already in the blow off top. Have been for the last year.

The parabolic moves in Amazon, Tesla, Facebook, and the rest without accompanying increases in real numbers proves that.


Oh you mean the same exact solar panels being used now with a bit of molding around them? WOW INNOVATION!!!!!!!!!!! PUMP UP TSLA A FEW MORE BILLION DOLLARS!!!!!!!!!

Coldfire's picture

There's a sucker born every minute. Go fuck yourself, Moron Stanley.

Golden Showers's picture

Yeah, Miss 1999...

http://miss1999.blogspot.com/ I read the news.

Note the words "obstetric fistula".


Want to know more?

hotrod's picture

Oh hell yeah.  The grand finale.

Going all in on Apple, Amazon and what the fuck TESLAX  the first TRILLION DOLLAR COMPANIES.  Gonna take over the world.

GunnerySgtHartman's picture

Goin' out with a bang! - if you're stupid enough to believe MS.

Nobody For President's picture

Though I hesitate to suggest such a thing, Mr. Wilson just *may* be talking his book.

Snaffew's picture

As ridiculous as it sounds, it's entirely plausible for these markets to do that very thing despite any and all rational evidence against it---

Yars Revenge's picture

MS looking for a few good rubes.

Xscream's picture

I am not making any moves till we hear from Gartman again. he is the best  :)

wmbz's picture

No matter what they will find plenty of suckers to buy in.

Chippewa Partners's picture

Blue Horseshoe says BUY.

It's all you need to know.

I love the smell of greed in the morning.

Nobodys Home's picture

Shlepwave prolly has some awesome advice.... At least that's what the spammers that can't afford to advertise tell me.

Sunny2's picture

So, time to sell, thanks!

Games Without Frontiers's picture

IMO 20/20 hindsight will reveal the 2k rip in the Dow after Trump got elected to be the official "blow off top". There was no reason for it, I believe big money used it to dump into volume. Now macro is deteriorating and "the Donald's" policies aren't coming to fruition.

Manipuflation's picture

This sucker is going to blow.  Start picking your shorts.  We've been through this central bank fraud before.  Let's kick some ass this time.  Bailouts coming.  Probably cheaper gold and silver too.  Take your profits from your shorts and keep on stacking.  Unless of course the market PM market dries up because no one will sell.  Been there seen that.

Just keep stacking no matter what else.  The last roll of silver dimes I bought was about $60.  Guess what the price is now?  HAHA!!!  FUCK YOU IRS.  The last gun I bought was bought with silver via private party.  Hey federal governement, I have news for you; you suck at what you do. 


gmak's picture

And I'm sure because I'm a special person, they (MS) will be willing to sell some of their and their clients' stocks to me - to make sure that I don't get left out.

Nobodys Home's picture

Because your name reminds us of Freddie Mack, we got a Wowser of a deal for you! 1% cash back on our broker fee!

MadRunner's picture

It's all uphill from here except for the downhill parts.

Nobodys Home's picture

That's what I always say sometimes!

C'mon Muppets! Get on board! Can't you see the Trump train is Full steam ahe... ummm, Leaving the station? umm cumin around the mountain?
I don't know what it is, but it's awesome! BTFD!!!!
MS says so! To the moon Alice!

khakuda's picture

"In a low-return world, investors cannot afford to miss it."


So ya gotta be in it to win it!  Just like the lottery!


Nobodys Home's picture

Same odds too! Well, probably worse. At least with the lottery all you lose is your ticket price.