• Morgan Stanley’s chief US equity strategist Mike Wilson warns that markets are still in a bearish cycle and investors are being misled by a spike in liquidity.
• The Federal Reserve’s Bank Term Funding Program has injected $2 trillion into the US banking system to ease the liquidity crunch.
• Wilson says that the rise in market liquidity is largely evident in this year’s strong performance of cryptocurrencies and tech stocks, but he does not believe that the market fundamentals are there to support a continued rally.
Morgan Stanley Strategist Issues Macro Warning
Morgan Stanley’s chief US equity strategist Mike Wilson has issued a macro warning to traders, noting that markets are still in a bearish cycle and investors are being misled by an influx of liquidity from the Federal Reserve’s Bank Term Funding Program. Wilson believes that equities will finish out the year weaker than they currently stand due to adverse macroeconomic fundamentals.
Injection of Liquidity
The Federal Reserve’s Bank Term Funding Program has injected up to $2 trillion into the US banking system to ease the liquidity crunch, which Wilson suggests is propping up markets and deceiving investors. He states that this increased liquidity is evident in this year’s strong performance of cryptocurrencies and tech shares, though he does not think these gains can be sustained as market fundamentals don’t support them.
Bearish Cycle Unabated
Wilson believes that despite increased liquidity, markets remain firmly entrenched in a bearish cycle with no immediate end insight; consequently, he predicts equities will decline during the second half of 2021. He warns investors against investing based on current momentum as it could lead them astray from their long-term investment goals.
Risk Aversion Necessary
While some stocks may continue to outperform over short periods, Wilson advises traders to practice risk aversion if they wish to succeed over longer horizons; while speculation may be tempting at times, it is important for people trading securities or digital assets alike to understand their underlying fundamentals before making investments decisions.
Conclusion
Wilson’s warnings highlight how unpredictable markets can be, especially when considering external factors like monetary policy which can have drastic impacts on asset valuations over short time frames. Without proper assessment of where markets truly stand within larger economic cycles, investors can easily get caught off guard by sudden sell-offs or unexpected rallies; therefore it is essential for traders stay informed about macroeconomic trends before making any large decisions with their capital
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