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One of Wall Street’s Most Vocal Bears Says Sell The Rally

(Bloomberg) — The recent rebound in U.S. stocks is a good opportunity to sell and position more defensively, according to one of Wall Street’s most vocal bears.

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“Last week was nothing more than a vicious bear market rally,” Morgan Stanley’s chief U.S. equity strategist Michael Wilson wrote in a note. “While it may not be completely finished, it is a rally to sell.”

The pessimistic outlook follows a rebound that saw the S&P 500 index gain 6.2% last week, the steepest weekly advance since November 2020, even as the Federal Reserve raised rates and confirmed its hawkish turn, while the war in Ukraine continued to rage. Still, the main U.S. equities benchmark is down more than 6% this year, following a ferocious rally in 2021 that catapulted it to successive record highs.

Investors should use the strength to position more defensively, as the U.S. economy is in a late cycle expansion phase, Wilson and his colleagues wrote in their note, upgrading utilities stocks to overweight. “Bear market rallies are the most vicious,” they said.

Meanwhile, Morgan Stanley’s European equities team lowered its forecast for earnings growth in Europe from an annual 10% to just 3% for this year. “We continue to see MSCI Europe’s risk-reward as unappealing at this time,” said the strategists led by Graham Secker.

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