January’s rally hasn’t been strong enough to turn Morgan Stanley’s chief U.S. equity strategist, Mike Wilson, any more bullish. In fact, he’s calling bulls “dangerous animals” and asking bull riders to “dismount.”
Wilson, who called 2018’s rolling bear market, hasn’t changed his bearish stance even after the S&P 500 posted a 6 percent gain in just the first four weeks of the new year. The mixed signals from the earnings season, a drag from the government shutdown, and limited impact from the Federal Reserve are just some of the reasons Wilson predicts the rally to be short-lived.
“We’ve gotten close enough on a bull that is becoming increasingly dangerous and we struggle to see the upside in hanging on just to see how long we can. We think it is better to hop off now and rest up for the next rodeo,” Wilson said in a note Monday.
Wilson, among Wall Street’s most bearish, has been calling for an earnings recession in 2019 since early December, while many other analysts now believe the plunge last year was an overreaction to recession fears and trade tensions. The S&P 500 is now up more than 10 percent from its worst Christmas Eve ever driven by upbeat earnings, but at the same time, the valuation is much less attractive and there’s little catalyst in sight to drive the market higher.
“Earnings have been limping in over a lowered bar. Double digit EPS growth may seem healthy, but 4Q18 growth is being propped up by lower taxes y/y, meaning fundamental results are already decelerating quickly with harder comparisons ahead,” Wilson pointed out.