Bulls Have Much ‘Explaining To Do,’ Morgan Stanley’s Wilson Says

(Bloomberg) -- The selloff in U.S. stocks has a lot further to go, according to one of Wall Street's most vocal bears. 

“We think the S&P 500 has minimum downside to 3800 in the near term and possible as low as 3460,” Morgan Stanley's chief U.S. equity strategist Michael Wilson said. The gloomy forecast implies a drop between 8% and 16% for the U.S. benchmark from current levels, amid higher costs and increased recession risks, Wilson wrote in a note to clients. 

April was the worst month in more than two years for U.S. equities, as fears of an economic slowdown, persistently high inflation, and an increasingly aggressive tightening rhetoric by the Federal Reserve weighed on risk appetite. 

The drawdown means that returns for U.S. equities over the past few months are deeply negative, when adjusted for inflation. “Anyone who tells you we are in a bull market has got a lot of explaining to do,” Wilson wrote in the note, adding that the “S&P 500 real earnings yield is the most negative since the 1950s.”

Wilson has the lowest year-end target for the S&P 500 out of all equity strategists surveyed by Bloomberg News. While he doesn't exclude a brief respite after the protracted selloff, he advises investors to sell the rebound. 

“On the positive side, the market is currently so oversold, any good news could lead to a vicious bear market rally,” he said in the note dated Monday. “We can't rule anything out in the short term but we want to make it clear this bear market is far from completed, in our view.”

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