Why These Analysts Are Warning Investors January Stock Market Rally 'Will Not Last'

The SPDR S&P 500 ETF Trust SPY is off to a strong start to 2023, and investors are hopeful that the stock market's 2022 struggles are now fully in the rearview mirror. Unfortunately, multiple market analysts are warning investors not to chase the recent market rally.

Morgan Stanley's Take: On Monday, Morgan Stanley analyst Michael Wilson urged investors not to fight the Federal Reserve, which is expected to raise interest rates by another 0.25% on Wednesday.

"Better price action in stocks has started to convince many investors they are missing something — compelling them to participate more actively," Wilson said.

"Investors seem to have forgotten the cardinal rule of ‘Don’t Fight the Fed,’" he said, noting that this week of big tech earnings reports from Apple, Inc. AAPL, Alphabet, Inc. GOOG GOOGL, Amazon.com, Inc. AMZN and Meta Platforms, Inc. META may serve as a wake-up call for the market.

Related Link: S&P 500 Makes Weekly Gains As Inflation Eases: What's Next For The Market?

Trainer Weighs In: Wilson isn't the only expert skeptical about the 2023 market momentum. New Contructs CEO David Trainer said Monday that the bullish market momentum is unsustainable.

"The January melt-up in stocks will not last and the more exuberant the market gets, the more likely the Fed will be more aggressive with rate hikes and quantitative tightening. Most investors don't realize the Fed has to fight the inflation in the stock market, too," Trainer said.

For now, he is urging investors to focus on profitable stocks with strong cash flows and other fundamentals and dump unprofitable stocks that are valued mostly on headlines, investor sentiment and narratives.

Related Link: 'Mild Recession' Imminent? Experts React To 4.4% Core PCE Inflation Ahead Of Next Week's Key Fed Decision

Benzinga's Take: Trainer was dead-on in 2022 with bearish calls on stocks such as Blue Apron Holdings Inc APRN and AMC Entertainment Holdings Inc AMC, so investors should certainly think twice before buying into the January stock market rally. It's extremely difficult to make the case for U.S. earnings growth and S&P 500 valuation upside until the Fed at least stops raising interest rates.

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