Mike Wilson Explains When This Bear Market Rally Ends, And Stocks Crash Again

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by Tyler Durden
Monday, Aug 01, 2022 - 10:40 PM

It's not just BofA's seemingly flawless bear, Michael Hartnett, who is warning that the current bear market (which he tactically said to go long two weeks ago) had gotten ahead of itself in pricing in the Fed pivot, because while a Fed capitulation is coming, it won't be here nearly as soon as the recent euphoric surge expects it to: Morgan Stanley's own inhouse permabear, Michael Wilson agrees.

Picking up on where he left off last week (when he was just as skeptical about the current rally, albeit with the S&) more than 200 points lower), Wilson writes in his latest Weekly Warm-up note (available to pro subs) that with equity markets continuing to rally last week in the face of a tighter Fed, still high inflation and generally weaker earnings/economic data, he further explores the thesis from last week as to why. Bottom line, according to Wilson "the Fed has quickly regained its credibility and that's good for bonds, not stocks" which will be impaired as the Federal Reserve continues to tighten policy, leaving little room for stocks to rally as earnings surprise to the downside. At the same time, bonds are rallying on the assumption that the Fed will get inflation under control, which is good for fixed income but not stocks as “it may come with a heavier cost than normal” such as a recession.

Repeating what he said last week, Wilson the warns that “risk reward is poor after the recent rally so trade accordingly as time may be running out”, but then again if one had listened to Wilson's bearishness for the past month one would have missed the best bear-market monthly bounce in almost two years.