Wall Street strategists have issued a warning that the US stock market is on the brink of a major collapse, as it enters the “death zone.” The term “death zone” refers to a height that is so high that climbers cannot get enough oxygen.
Michael Wilson, Chief US Equity Strategist at Morgan Stanley, sent a note to investors warning that the S&P 500, which is up 6% since the start of 2023, could fall by as many as 3,000 points in the coming months once investors realize there won’t be a Federal Reserve pivot later this year.
Wilson compared the market’s state to high-altitude mountaineering, stating that it was time for investors to head back to base camp before the next guide down in earnings. Michael Hartnett, a chief economist for the Bank of America, echoed Wilson’s concerns, saying that a “no landing” scenario for the market is a possibility, meaning that stocks could end up plummeting after a rise in growth and inflation.
Wilson blames the “pursuit of the ultimate topping out of greed” for the US stocks rising to unsustainably high levels. While stocks have been trending upward this year, policymakers at the Federal Reserve have signaled that they will hike interest rates eight consecutive times until a rate of between 4.5% and 4.75% is achieved. This has caused some stocks to stall, losing momentum.
Wilson warns that this high-altitude climb of the stock market could lead to “many fatalities in high-altitude mountaineering,” either directly through loss of vital functions or indirectly by wrong decisions made under stress or physical weakening that lead to accidents.
Despite the grim outlook, Federal Reserve Chairman Jerome Powell maintains an optimistic view on the economy’s future, suggesting that there is a path to getting inflation back down to 2% without the economy suffering a recession.
Powell stated, “I continue to think that there’s a path to getting inflation back down to 2% without a really significant economic decline or significant increase in unemployment.” As inflation and interest rates continue to increase, investors must be mindful of the “death zone” that awaits them should they continue to climb too high too fast.
Source: 100PercentFedUp