Stock Market Correction That Could Feel Nasty Incoming, According to Morgan Stanley’s Chief Investment Officer

Morgan Stanley’s chief investment officer and chief US equity strategist, Mike Wilson, is warning of a stock market correction in the short term.

In a new CNBC interview, Wilson says two factors could trigger an imminent downturn.

“I think we have maybe a tradable correction. And it would be those three things you mentioned. First, the China-US trade tensions. We’re kind of walking towards this, you know, deadline. The markets may get nervous around that. And by the way, it’s a correction – it’s not like we’re going back to where we were in April. But a 10% correction would feel pretty nasty.

The second reason would be we get funding market stress, which, by the way, the [Federal Reserve] Chair [Jerome] Powell talked about last week. That’s one of the reasons why we may end QT [quantitative tightening] a little bit earlier next year, because we’re starting to see a little bit of funding stress. Which is essentially the bank reserves are maybe a little bit too low for the liquidity we need, not just for the financial markets but now for this economy, which, I think, could be booming next year. So those are two reasons I think we could see some corrective activity in the near term.”

Wilson says that if and when the Federal Reserve cuts rates, stocks that thrive in times of loose monetary policy will likely benefit.

“Now, we do think the Fed will get with the program and they will start cutting rates in a more meaningful way once the labor data confirms what we all know, which is that the labor market is not that good.

And when that happens, then we can really transition to the interest rate-sensitive parts of the market that have been languishing. Things like housing, things like consumer goods, all the durable goods, the areas where there’s pent-up demand.”

 

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