Via a Morgan Stanley analyst Michael Wilson note on Monday.
Says the fastest Fed policy shift in 40 years drove the sudden failures of Silicon Valley Bank and Signature Bank in March and could bring about further surprises as the Federal Reserve could keep rates higher for longer:
- “If there is one thing that can throw cold water on the large mega cap rally it’s higher yields due to a Fed that can’t stop hiking”
And:
- “More negative surprises lie ahead for investors”
- earnings estimates for Q1 have been cut by 15% since a peak last year
- worries over tighter credit conditions have sapped business sentiment this month - this is indicative of further earnings weakness ahead
- says market breadth (measured by the % of stocks in the S&P500 that have outperformed the broader index in the past three months) is at its lowest level on record, a sign investors may “suddenly” acknowledge that earnings forecasts “remain too optimistic”. “We think the recent collapse in breadth is the market’s way of warning us we are far from out of the woods with this bear market.”
---
I posted another bearish viewpoint a little earlier: