Morgan Stanley Strategist Advises to Get Out of Stocks

Mike Wilson

While many investors are concerned that the current bull market may be over soon, Morgan Stanley’s Mike Wilson tells us that he has seen enough to get out now.

Morgan Stanley’s chief equity strategist Mike Wilson likens the current ride that stock markets have been in over the past while to a rodeo, and he advises us to “dismount” from the current bull that we’ve been on during the past month or so.

When you see a correction in the area of the 20% that we saw late in 2018, it’s only natural that a lot of people will be concerned, and some may see this as spelling the end to the 10-year bull market we’re currently enjoying.

We’ve made up about half of that now though, which many perceive as confirmation that the ride may not be quite over, with this even ending up being more of a slowdown overall than a real bear market.

Wilson compares this comeback to riding a real bull, the ones that rodeo riders ride, the ones that are looking to fiercely buck their riders off their backs and onto the ground. These rides only last a very short period of time before the bull wins this game, much like the ride we’ve been on since Christmas.

Wilson characterizes this move of late as a “short and volatile ride” and added that “maybe the bull ride since December 24 has not gone a full 8 seconds, but we’d look to dismount anyway, as bulls can be dangerous animals.”

Has This Been a “Short and Volatile Ride”?

It’s not clear what Wilson means by “volatile,” but it can’t mean market volatility. This move has been very clean actually as far as movements of this length and magnitude go, and has been virtually straight up, with only one day, January 3, taking us off this course, which was made up for in just two trading days.

We are in the midst of a considerable amount of uncertainty though, although if this is what Wilson means by this, it’s hard not to wonder why he chose the word “volatile” instead.

The ride has indeed been a relatively short one, but we’re still on it, and its ultimate length will of course be determined later. However, it is true that the longer a trend is, the more people tend to see it as meaningful, and there is some truth in the fact that a move up of about 10% over a period of only a month isn’t as meaningful as, say, a 40% move over a year would be.

Wilson is not alone in taking a bearish view of the current markets, and there are always bears out there, especially when you get a meaningful pullback. Bears need to see more action to change their mind of course, and we will need to see more if it to impress many of them.

The most curious part of Wilson’s comments is his telling people to dismount the bull. Large institutions tend to take a fairly conservative view of things like getting out of stocks, and you often see them not even advising this when doing so should be obvious to everyone.

Big financial institutions do need to anticipate markets a lot more than individual investors do, and when you need to decide things in advance as they need to, it can make sense at times to walk away from some upside if the risk you take, due to the time it takes to move out of things, is too high.

This is in contrast to individuals, who can make whatever changes they desire to their portfolios in real time, at once, and can therefore afford to hang on longer and trade on the facts instead of just the rumors or beliefs.

Mike Wilson dismounting, and Joe Investor getting off his bull before the ride is over, are therefore two different matters. We can presume though that Wilson sharing all of this with us means we should dismount our bulls as well.

There Are Plenty of Concerns Out There Though

On Wilson’s side, there is certainly a lot to be concerned about out there, and this should at least serve to heighten our awareness of the potential of this all ending soon. All bull markets do come to an end, and it’s in the nature of markets to have trend reversals.

There is indeed a tipping point that we end up reaching that defines the reversal, and this is easy to see when you look into the past, but this is quite a bit more difficult to predict while on the journey, and often times, even during it, as far as where we’re headed next generally.

There are times where the signs are clear enough that we can know with at least reasonable certainty that we’re there, but in some cases, like this one, whether the bull run is over or not is not quite so clear.

Wilson’s advice to “hop off and rest for the next rodeo” is actually pretty refreshing, as there are times when we do need to hop off and need to rest, although whether or not this is the time to do this is not that obvious and a view we may at least wish to question.

For those who may be disposed to hopping off, they may wish to consider the timing of this, which will depend, among other things, at how adept you are to hop off if you need to, in concert with the magnitude of the bucking.

Wilson may be right about this prediction and this does go along with economic forecasts for 2019, which project a slowing economy. Stock markets aren’t particularly fond of slowing economies, but this does tend to create less of a need for interest rate hikes and other measures to slow the economy, which the market cares about a great deal.

Wilson recognizes this and remarks that the direction of the Fed could be the real game changer here. If their approach is more conservative, this can allow businesses to reverse to some degree anyway the downward course we are on.

He believes that the Fed will use some sort of tightening to keep the lid on things, with some combination of interest rate hikes and quantitative tightening, to enough of a degree to keep him wanting to dismount.

Getting out of the stock market is something to think about right now perhaps, although many remain positive enough in their outlook to be nowhere ready to dismount the bull.

John Miller


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