Slumping growth could soon kill the stock-market rally, Morgan Stanley's top strategist says

  • One of Wall Street’s most bearish strategists isn’t expecting the stock-market rally to last.
  • Slumping growth could soon crush equities, according to Morgan Stanley’s Mike Wilson.
  • “Investors may be in for a rude awakening,” he wrote in a note to clients Monday.

Slumping economic growth could be about to stop the stock-market rally in its tracks, Morgan Stanley’s top strategist has warned.

Mike Wilson said Monday that he’s sticking with his view that the economy will stagnate in the second half of the year, which he expects will chip away at listed companies’ earnings and drag down stock prices.

“Given our fundamental view on growth, we find it hard to get on board with the current excitement and narrative supporting it,” Wilson, who is Morgan Stanley’s chief US equity strategist, wrote in a note to clients.

“Investors may be in for a rude awakening given the very big reach for risk we are seeing,” he added. “Time will tell but suffice it to say, we haven’t changed our view on the growth front.”

Wilson has been one of Wall Street’s most bearish voices in 2023, repeatedly predicting a stock-market slump – but his pessimistic outlook hasn’t been realized yet.

Equities have instead started the year on a tear, with the S&P 500 jumping 15% and the Nasdaq Composite soaring 31% year-to-date.

But the gains have come amid signs that the US economy is slowing dramatically, with the country’s Gross Domestic Product rising just 1.1% in the first quarter of 2023.

Big Tech powerhouses like Nvidia and Microsoft have helped the benchmark indices to shake off that gloomy outlook, with investors enthused by the explosion of interest in ChatGPT piling into artificial intelligence-related stocks.

But even AI – which Morgan Stanley previously labeled a $6 trillion investing opportunity – won’t prevent the early-2023 bull market from dying out, according to Wilson.

“To be clear, we believe in the AI theme, too; and believe it will be a big component in the next boom,” he wrote. “We just don’t think it will prevent the deceleration that is already in motion for this year.”