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Top Morgan Stanley Strategist: This Is When the Bear Market ‘Will Be Over Probably’

With U.S. stocks down more than 20% so far this year, investors are looking for some good news – and it may be coming from a prominent Wall Street analyst who says the current bear market could come to an end sometime around St. Patrick’s Day.

In an interview with Bloomberg Television, Mike Wilson, the Equity Strategist and Chief Investment Officer for Morgan Stanley predicted that the bear market in U.S. stocks could come to a conclusion early in 2023. Investors are taking note because Wilson, who’s typically skeptical about the market, is listed as No. 1 on Institutional Investor’s recent ranking of portfolio strategists.

“We think ultimately the bear market will be over probably sometime in the first quarter,” Wilson said on the broadcast.

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On the other hand, Wilson would seem to be taking a view that’s quite opposite of what other Morgan Stanley analysts are telling clients. In a late September post at MorganStanley.com, Lisa Shalett, the firm’s Chief Investment Officer for Wealth Management, wrote that, “Morgan Stanley’s Global Investment Committee believes this bear market is far from over.”

Wilson cited the S&P 500’s 200-week moving average as the prime indicator. That indicator stood at 3,612 as of late October. On Nov. 30, the S&P 500 closed above the 200-week moving average for the first time since April 7. As long as the index remains above that average, stocks could recover to go as high as 4,150. If the index falls through the 200-week barrier, however, Wilson said, investors should take that as a signal to start selling.

As quoted in Markets Insider, Wilson said, “The 200-week moving average is an extremely powerful technical support level for stocks, particularly in the absence of an outright recession which we don’t have, yet.”

The S&P 500 has been moving up during October, gaining between 2% and 4% on positive earnings news. After starting the year trading as high as 4,800, the index fell slightly below 3,500 in the first weeks of October before climbing back to around 3,800. In November it climbed north of 4,000. As long as this current trend of gains stays steady, Wilson said, the bear market would end during the first quarter of 2023.

In between now and then, however, comes holiday sales along with fourth-quarter and year-end earnings results. A weak holiday sales season could be in the offing, as retailers have already been discounting overstocked inventory as consumers shifted back to buying more services and fewer goods as the COVID-19 pandemic has slowed.

If that were to happen, Wilson said, investors will need to place more emphasis on fundamentals, such as sales and earnings, rather than technical indicators like the 200-week moving average.

If Wilson is right and stocks send the S&P 500 upward to more than 4,100 (it’s currently at 4,046), that would be a significant gain over Morgan Stanley’s estimate that the index will be close to the 3,900 level by June.

“We’re probably more bearish than most for the outlook next year,” Wilson told Bloomberg. “But we do think this tactical rally is going to be big enough to try and pivot and trade it.”

Bottom Line

Mike Wilson, the Equity Strategist and Chief Investment Officer for Morgan Stanley, says the bear market could end by sometime in the first quarter of 2023. He basis his analysis off of the S&P 500 200-week moving average.

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