Morgan Stanley Warns US Stocks Heading For 'Boom-Bust Cycle'

Morgan Stanley‘s Mike Wilson cautions on an impending earnings recession due to declining inflation, Business Insider reports.

Wilson, who is the Chief Investment Officer of Morgan Stanley, has reiterated his concerns about the stock market being in a “boom-bust cycle.”

He attributes this to the expansive fiscal policy during the pandemic causing inflation and asset prices to surge, followed by a tight monetary policy over the past year to control inflation, leading to asset price declines. This has resulted in the S&P 500 dropping 20% in 2022. Despite these warnings, the market seems to be overlooking these risks as more investors are investing in stocks with the cooling of inflation and a strong economy.

Wilson’s team emphasized the potential risks if fiscal spending is reduced due to political or funding challenges.

They noted, “We think the even bigger takeaway for investors to consider is if fiscal spending must be curtailed due to high political or funding costs, the unfinished earnings decline that began last year has further to fall as inflation doesn’t just stop at 2%.”

Falling inflation is already impacting sales and earnings growth, with the Producer Price Index showing only a 0.1% increase in June.

Photo by Jirapong Manustrong on Shutterstock

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