Tech Stocks
Morgan Stanley’s (RANK#1) Michael Wilson recently made waves by predicting that big technology and meme stocks could fall by as much as 20 percent. While Wilson did not specify which stocks he was referring to, his warning has sent shockwaves through the financial world, and investors are taking note.
Wilson has been a long-time equities bear and was ranked No. 1 in last year’s Institutional Investor survey after correctly predicting the selloff in stocks in 2022. He correctly forecast a rally in US equities in October of last year as well. He has since cautioned that the S&P 500 could test the October low as fundamentals deteriorate.
The problem, according to Wilson, is that markets have forgotten about “the whole idea of accruals” – earnings without cash coming through the door. He believes that the spread between companies’ cash flow and income reported during this period of hot inflation will hurt margins. This erosion of the bull case for US stocks is further compounded by the worst earnings quality since 1990, which Wilson says is likely to persist for some time.
While Wilson believes that the markets will eventually recover, he suggests that it could take longer than it should for investors to look through the difference between the real economy and what could happen with earnings. The markets’ abilities to see through this difference, Wilson says, “takes longer than it should,” which can be frustrating for investors who are trying to navigate the choppy waters of the financial world.
The big question is whether the markets will look through the short-term issues and focus on the long-term potential of these stocks. According to Wilson, the market will not look through it if the earnings degradation is as severe as he thinks it’s going to be. It remains to be seen whether investors will take Wilson’s warning seriously and adjust their portfolios accordingly, or whether they will continue to invest in technology and meme stocks despite the risks.
In conclusion, the warning from Morgan Stanley’s Michael Wilson has put investors on high alert, and it remains to be seen whether technology and meme stocks will indeed fall by 20% or more. What is clear, however, is that investors should be cautious and pay attention to the fundamentals of the companies they are investing in, rather than simply relying on hype and buzz.
