Investors should not bank on a pivot from the Federal Reserve as the stock market enters a key period of earnings reports and inflation readings, according to Morgan Stanley’s Mike Wilson. The equity strategist said Wednesday on CNBC’s “Tech Check” that the market can’t expect a full change from the Fed without some significant bad news for the economy or market functionality. “We don’t think there’s an imminent pivot coming anytime soon, in terms of a true pivot where they not only cause but really start cutting rates. We think that will come when it becomes apparent that we are in a recession or there is some sort of stress in the financial system that the Fed has to react to,” Wilson said. The central bank is widely expected to implement another three-quarters of a percentage point rate hike next month. It would be the fourth straight hike at that size. With the Fed reluctant to change course, earnings could become the main driver of markets. And that may not be good news for bulls. Consensus earnings estimates for the next 12 months could be 20% too high, according to Morgan Stanley’s models. “We don’t get everything right of course, but directionally that’s a pretty big gap. And we just don’t think that’s priced,” Wilson said. Wilson does think that investors can buy some stocks but only after their expectations are reset, such as through a guidance cut. “Don’t be looking to buy companies that haven’t lowered the bar at all, because this isn’t going to be a situation where the average company avoids a downtown in earnings. This is going to be very broad,” Wilson said. The corporate earnings season kicks into high gear on Friday, with major banks JPMorgan Chase, Wells Fargo, Citigroup and Morgan Stanley slated to report.
Here’s when Morgan Stanley’s Mike Wilson sees a ‘true Fed pivot’ coming
