Stock market outlook: Fed and earnings push Mike Wilson to stay bearish

Investors are poised for disappointment amid the ongoing stock market rally because earnings expectations are too optimistic, according toThe S&P 500 is up 8% year to date, and the Nasdaq is up 16%. But earnings estimates remain too high even after they've been consistently moving lower, and that they are"likely to fall rapidly as revenue growth is the next shoe to drop," he said in a Monday note.

"We would caution those cheering the softer-than-expected inflation data last week. Falling inflation, especially for goods, is a sign of waning demand, and inflation is the one thing holding up revenue growth for many businesses," Wilson warned. "If/when revenues begin to disappoint, that margin degradation can be much more sudden, and that's when the market can suddenly get in front of the earnings decline we are forecasting," he explained.

While inflation has cooled off sharply, it's still above the Fed's long-term target of 2%. That could cause the Fed to continue with rate hikes and keep rates higher for longer, dragging on stock prices.

“Workers didn’t get hit hard enough so we need to tank things so we can fire a bunch and force lower salaries”

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Here's how different stock-market styles have performed during Fed rate pausesTraders and analysts are expecting one last Federal Reserve interest-rate hike in May before policymakers hit the pause button.
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