Despite the market jumping after the Fed decision, Morgan Stanley wants investors to stay away from stocks.
Mike Wilson is the firm's chief U.S. equity strategist and chief investment officer.
It is unlikely that there will be a gap between the end of the Fed hiking campaign and the start of the recession. This will be a trap eventually.
Wilson said that the most pressing issues are the effects the economic slowdown will have on corporate earnings and the risk of the Fed over-tightening.
He said that the market has been a bit stronger than he thought. The bond market is starting to believe that the Fed is going to go too far and cause a recession.
Wilson has a 3,900 year-end price target on the S&P 500. That means a 3% dip from Wednesday's close and a 19% drop from January's close.
The forecast calls for the market to take another leg lower before the end of the year. The S&P fell to a low last month.
We are nearing the end. The bear market has been going on for a long time. I don't think the June low is the final move because it won't quit.
In a recession scenario, Wilson thinks the S&P 500 could fall as low as 3000.
He said that it was important to frame every investment in terms of upside and downside. You are taking a lot of risks to get what you want. I don't think that's investing.
Wilson considers himself conservatively positioned and likes defensive plays such as health care, consumer staple and utilities. Extra cash and bonds are of interest to him.
He is hanging out until there are signs of a trough in the stock market.
We want to give them a good risk reward. Wilson said that the risk-reward right now is about 10 to one negative. It's just not good.
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