[Rise Community] Big short sellers speak out! Morgan Stanley: The rebound in US stocks is not a new round of bull market, and the Fed's suspension of interest rate hikes this week may awaken the bear market

Morgan Stanley’s chief investment officer said the recent rebound is not the start of a new bull market and that the Federal Reserve’s pause in rate hikes this week could awaken the bears.

Mike Wilson, chief investment officer at Morgan Stanley, said the current stock market rebound does not mean a new bull market has begun, as the bear market could easily be reawakened if the Federal Reserve pauses on rate hikes.

In a note Monday, Wilson reiterated his bearish view on stocks despite the S&P 500’s strong performance this year.

The benchmark index is now up 20% from its October low and officially entered a bull market last week, a sign that investors are growing more enthusiastic about stocks as inflation eases and expectations for more Federal Reserve rate hikes recede.

But Wilson warned that economic pressures were still building, with a strong dollar and high borrowing costs continuing to weigh on corporate profits.

He predicted that reduced market liquidity could "destroy" corporate earnings, ushering in the second half of the boom-bust earnings cycle that began in 2020.

The turning point could come as the Federal Reserve is expected to pause its rate hikes at its policy meeting on Wednesday, which commentators say would be bullish for stocks.

Wilson believes that while a pause in Fed rate hikes could drive stocks higher, the upside will be temporary, calling a possible pause in rate hikes the "perfect end" to a bear market rally.

“With the S&P 500 rallying above the 20% threshold, there is a growing consensus that the bear market is officially over. We beg to differ due to our 2023 earnings forecasts. Ironically, a pause in Fed rate hikes could tactically awaken the bears just as liquidity headwinds intensify,” Wilson said.

Morgan Stanley strategists predict that corporate profits will fall 16% this year before rebounding sharply by 23% by 2024.

High interest rates have weighed heavily on corporate profits in 2022, contributing to a 20% drop in the S&P 500 last year. Central bankers have raised interest rates by more than 1,700% to tame inflation and have warned that rates could remain elevated until the end of 2023 as price pressures linger in the economy.