Mike Wilson Cranks Up The Doom And Gloom To 11: "Our Model Now Projects A Much More Dire Outcome"

By Michael Wilson of Morgan Stanley

For the past six months, the S&P 500 has been trading in a narrow range (3800-4200), and we’re now back to the levels where we abandoned our tactically bullish stance last December. With the index showing some signs that it wants to break out, market internals are much less attractive today and leadership has changed dramatically.

Late last year, the leaders were energy, materials, financials and industrials, while technology was the big laggard. Small caps were also doing much better and breadth was strong. The bullish narrative revolved around China’s reopening, which would put a floor in for global growth. Today, breadth is very narrow under the surface of the market. Technology and consumer are the only sectors up on the year, and even they are exhibiting narrow breadth. Yet investors are more bullish than in early December, or at least far less bearish, given optimism around technology diffusion, specifically artificial intelligence. While we believe AI is for real and will likely lead to some great efficiencies that help to fight inflation, it’s unlikely to prevent the deep earnings recession we forecast for this year.