US stocks enter ‘death zone’: Morgan Stanley issues dire warning to investors who ‘followed prices to dizzying heights’ amid fears the S&P 500 could plunge 26% in a few months
- All three major indices suffered a brutal 2022, and while they made a modest rally in early 2023, a crash may be just around the corner.
- Economists at several major banks are predicting a “no landing” scenario, which could create a severe market downturn.
- A Morgan Stanley strategist advised that the current condition of the stock market is the result of investors continuing to search for “the bottom line of greed.”
US stocks have risen to unsustainably high levels and face almost certain losses once investors realize the Federal Reserve is unlikely to budge later this year, according to a group of Wall Street strategists.
In a note this week, the bank’s chief US equity strategist argued that the market has entered a level called the “death zone,” which in mountaineering is the term used to describe an altitude so high that climbers cannot get enough oxygen.
“Whether by choice or necessity, investors have followed stock prices to dizzying heights once again as liquidity (bottled oxygen) allows them to escalate into a region they know not to go and cannot live a long time,” wrote Morgan Stanley. Chief US Equity Strategist
Wall Street economic strategists warn that the US stock market is in a “death zone”
Michael Wilson, a Morgan Stanley adviser, said the potentially fatal rise out of the ‘death zone’ has been caused by the ‘pursuit of maximum greed’.
‘Many deaths in high-altitude mountaineering have been caused by the death zone, either directly from loss of vital functions or indirectly from wrong decisions made under stress or physical debilitation leading to accidents.
“This is a perfect analogy for where equity investors are today and, frankly, where they have been many times over the past decade.
“Time to head back to base camp before the next earnings guide,” he continued.
He blamed the continual ‘ascension’ that could end in catastrophe on the ‘quest for ultimate greed’.
He suggested that the S&P 500 could drop as much as 3,000 points in the coming months, down 26 percent from its current position. Although, for the moment, the index is still up 6 percent from the beginning of 2023.
That forecast comes after a tumultuous year for the stock market, during which all three major indexes returned significant value.
The Dow Jones Industrial Average ended 2022 down 8.8 percent, while the S&P lost nearly 20 percent of its value, and the technology-heavy Nasdaq Composite fell 33.1 percent.
Stocks have had a moderate upward swing so far this year, although some stocks are beginning to stall as the Federal Reserve plans to raise rates again.
Wilson’s gloomy projection is echoed by Bank of America chief economist Michael Hartnett, who last week said the “no landing” scenario for the market is a clear possibility for the first half of this year.
A trader on the floor of the New York Stock Exchange, where stocks across the board have had a 14-month slump.
Wilson continued: “Whether by choice or necessity, investors have followed stock prices to dizzying heights once again as liquidity (bottled oxygen) allows them to escalate into a region they know not to go. And they can’t live long.”
‘No landing’ describes a situation where growth and inflation continue to rise, which in turn could cause stocks to crash.
JPMorgan strategist Mislav Matejka wrote that stocks will not bottom out until the Federal Reserve reaches the end of its aggressive interest rate hike campaign.
Fed policymakers have repeatedly signaled that they will raise interest rates eight consecutive times to a rate between 4.5 and 4.75 percent.