US equity investors should be braced for more pain, as indexes haven’t yet hit bottom for the year, according Mike Wilson, chief US equity strategist and chief investment officer at Morgan Stanley.
“June probably was the low for the average stock,” he said in an interview Wednesday on “Bloomberg Markets,” but index directions are “down for at least next quarter or two.”
The reason, he said, is that trends in operating margins were worse than expected and this will continue.
“The market is being too optimistic about the earnings outlook,” Wilson said. “The multiples will start to come down and earnings get cut.”
“We don’t think it will be a one-quarter affair,” he added.
As the Federal Reserve remains laser-focused on economic data, Wilson thinks the central bank “is always going to be late by design” since it relies on two if the most backward looking data points -- labor market data and inflation.
“By the time the labor market falls apart, it’s too late,” he said, since by then it will be “obvious” that we are in a recession.
In fact, he said, “investors are way too preoccupied with the Fed.”
“The Fed is relevant, but I think we priced in most of the Fed pain after the first of the year,” as multiples came down by 30%, Wilson said.
-With assistance from Alix Steel and Anna Edwards.