“The Possibility of a 20% Plunge in US Stocks does Exist”

According to reports, Mike Wilson, a US stock strategist at Morgan Stanley, warned about two weeks ago that the possibility of a 20% plunge in US stocks does exist. Since then, the S&P 500 has experienced a lot of volatility, but it has remained near historical highs. In this regard, Wilson still maintains a cautious attitude and reiterated that the stock market will be corrected.

The report pointed out that as the pace of bond selling accelerates and the bottleneck of the global supply chain intensifies, opinions like Wilson seem to be more acceptable to the market. He believes that nowadays pent-up consumer demand has gradually faded, and it is actually difficult to suppress inflation concerns during the earnings season.

Wilson said in an interview: “We are in the final stage of the mid-term transformation of this cycle. In this stage, we will see a slowdown in economic growth and market corrections.”

Although the price-earnings ratio of the S&P 500 has fallen to 20 times, Wilson expects it to fall further to 18 times in the near future. Coupled with the possibility of declining corporate profits, he believes that the recent record highs in stock prices are not unreasonable.

Wilson said: “We have always expected the market to see a 10-20% correction led by technology stocks. We think the profit forecasts of these companies are too high.”

Wilson said that retail investors have always been very resilient, but if they eventually find that buying on dips no longer works, they will not buy on dips next time. This is what happened when the S&P Index broke below the 50-day moving average a few weeks ago.

Tobias Levkovich, chief US equity strategist at Citigroup, also previously predicted that the Standard & Poor’s 500 index will fall to 4000 points by the end of the year, which means that the market may fall by 10% from current levels.

Kristina Hooper, global chief strategist at Invesco, a US asset management company, also warned that US stocks may see a 10% to 15% correction.