Bear market rally isn't over as stocks survive a crucial test: Mike Wilson

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The bear market rally isn't over yet as stocks just survived a crucial test, Morgan Stanley's Mike Wilson says

But those trends are showing some signs of exhaustion, and in the absence of continued declines in yields and the dollar, the bear market rally will fail, Wilson said.," that would soon give way to a massive sell-off.

He remains bearish in the longer term, pointing out that an ongoing earnings recession will continue to affect markets. Morgan Stanley estimated that the gap between reported earnings and cash flow is the widest in 25 years. If reported earnings outpace cash flow, then profits may be unsustainable. That may be the case, Wilson said, as excess inventory and capitalized costs have yet to appear in the bottom line.

"There is plenty of bullish and bearish fodder in these charts and one will have to take their own view on the fundamentals," he wrote."Our view remains the same — the bear market is not over — but we acknowledge that Friday's price action may extend it a few more weeks. Time will tell."

 

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