Fundamental picture for stocks deteriorates as the Fed begins to tighten monetary policy – Morgan Stanley

The forecast for inflation still appears hot for both consumers and corporates, but when it comes to earnings and economic growth, the outlook looks a bit chilly.  Mike Wilson, chief investment officer and chief US equity strategist for Morgan Stanley, believes that the outlook for equities is deteriorating.

An icy winter for investors?

“We think the gross slowdown will be worse and last longer than expected as the payback in demand arrives early next year with a sharp year over year decline in personal disposable income.”

“The fundamental picture for stocks is deteriorating as the Fed begins to tighten monetary policy and growth slows further into next year. However, asset prices remain elevated as the upper income cohort of retail investors continues to plow money into these same investments.”

“With seasonal trends positive this time of year, institutional investors are forced to chase prices higher. If our analysis is correct, we think this can continue into Thanksgiving, but not much longer.”