FX.co ★ Morgan Stanley: Stock market growth is a trap.

The primary indices of the US stock market – Dow Jones, NASDAQ, and S&P 500 – concluded Thursday with new growth. Moreover, the fact that the stock index is rising after the Fed raised interest rates for the second time in a row by 0.75 percentage points can only be described as paradoxical. However, we recall that we stated yesterday that this is a completely illogical market reaction, as the movement should be in the opposite direction. We continue to predict that the US stock market could lose an additional 20% in 2022, as monetary policy tightening is always negative for equities and indices. The chief equity strategist at Morgan Stanley, Mike Wilson, holds the same opinion. He added that the market is currently purchasing securities in anticipation of a slower rate of monetary policy tightening. It is difficult to see how and where investors saw Powell's words as indicating a softening of the Fed's aggressive approach to rate hikes. However, it appears that confidence is currently overwhelming stock market players. Wilson also recalled that the market always expands when the Fed stops hiking or begins dropping interest rates. This occurred during the pandemic breakout in 2020, when rates were cut to zero, and quantitative easing began to function. Wilson also believes that a recession in the US economy is virtually likely and will start almost immediately after the Fed hits its target rate. According to him, the current boom in the stock market is a "trap."

Morgan Stanley's projections are also not overly pessimistic. According to the S&P 500 index, Wilson anticipates a decline to 3000 (now 4072). According to Wilson, the recession will impact business earnings, and excessively high-interest rates will make safe investments the most desirable. The chief equity strategist at Morgan Stanley echoes our position, which we have previously expressed in its entirety. Not only do corrections occur in the foreign currency market, but they also occur in the stock market. Therefore, what we are currently observing is probably just a correction. However, the belief that the "trap" is a method of artificially inflating the market to maximize profit margins is not without merit. We still do not see how the US market can suddenly change to a "bullish" trend. It is also important to note that the cryptocurrency market is increasing simultaneously with the stock market, which is paradoxical. As Powell almost openly declared on Wednesday evening, the Fed may increase the rate by 0.75-1.00 percent at least once more, and the regulator may increase the rate by 4-5 more times.