Morgan Stanley's Chief Investment Officer Issues Macro Warning To Traders, Says Investors Are Being Fooled By Rise In Liquidity

Morgan Stanley’s MS Chief U.S. Equity Strategist and Chief Investment Officer Mike Wilson says that the equities will finish out the year weaker than they are trading today, possibly due to adverse macroeconomic fundamentals.

In an interview on Friday, Wilson said that the markets are still in a bearish cycle and a spike in liquidity is fooling investors. 

According the chief equity strategist, an injection of new liquidity from the Federal Reserve’s emergency loan program that was  established to rescue collapsing banks is propping up the markets and misleading investors.

“We think the overriding driver of this year’s rally has been increased liquidity. Although liquidity has improved dramatically, both on a global scale, and a weaker dollar has helped, that’s going the wrong way again,” Wilson said during the interview. 

“Of course, ironically, the banking failures in March led to an injection of liquidity from the FDIC (Federal Deposit Insurance Corporation) and the Fed. And we think those things have conspired to drive the market,” he added. 

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Wilson said he doesn’t believe that the market fundamentals are there to support a continued rally and predicted a market dip to finish the second half of the year.

“Nobody talks about the fact that crypto is up 60% this year. And then the next one, of course, is the tech world. So this is what’s going on. We think that the fundamental case does not support where stocks are trading today, whether it’s at the index level or the single stock level and the second half is going to be a bit choppier and probably downward in the index,” Wilson added. 

Earlier, analysts at JPMorgan Chase & Co JPM predicted the Federal Reserve’s new bank backstop program could inject up to $2 trillion in liquidity. 

The analysts’ prediction was based on the amount of uninsured deposits at six U.S. banks with the highest ratio of uninsured deposits over total deposits, and is closer to $460 billion, Bloomberg reported. 

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