Don’t Fight the Fed”: Morgan Stanley Analysts’ Warning Ahead of FOMC Meeting
It seems investors have forgotten the cardinal rule of “Don’t Fight the Fed,” according to a team of analysts led by Michael Wilson. The upcoming FOMC meeting, which concludes on Wednesday, will serve as a reminder. The Fed is expected to raise rates by a quarter point, following a half-point increase in December and four 75-basis-point increases before that. Markets overwhelmingly expect another quarter-point hike in late March to a 4.75-to-5 percent range.
Morgan Stanley chief equity strategist, Mike Loewengart, discussed the market environment, stating “It’s been a challenging market environment as investors navigate through high inflation, geopolitical concerns, and recession fears. While these challenges aren’t likely to disperse anytime soon, it’s important for investors, where appropriate, to remain committed to their plan and consider the diversification of their portfolio. Moving money to the sidelines may sound tempting, but for investors with a lengthier time horizon, staying the course may be beneficial in the long run.”
Wilson argued that better price action in stocks has prompted investors to participate more actively as they fear missing out. He noted that “all the good news is now priced” and “the reality is likely to return with month-end, and the Fed’s resolve to tame inflation.”
Meanwhile, Bank of America has predicted that the stock market is set to peak in the next two-weeks because inflation is poised to make a comeback.
Wilson also warned that disappointments around Corporate America profits could “accelerate,” with the recent rally in equities potentially becoming a head-fake. He noted that “earnings are bad” and “it’s one of the worst streaks in earnings we’ve seen in quite a while.” He believes January’s rally lured people into believing that “reality is different than what it is” and likened last month’s uptick in stocks to the start of 2001, when the market also saw a re-rating in tech stocks.
Wilson says he doesn’t expect anything surprising out of the Federal Reserve on Wednesday, which is widely expected to raise interest rates by 25 basis points, slowing its pace of hikes for a second consecutive session.
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