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“We Were Wrong” to Write Off Stocks’ AI-Fueled Rally, Morgan Stanley Says

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  • Morgan Stanley’s top strategist has been one of Wall Street’s most bearish voices this year.
  • Mike Wilson said Monday he’d been “wrong” to write off stocks, with the benchmark S&P 500 up 19% year-to-date.
  • But cooling inflation could eventually wipe out that rally, he added.

One of Wall Street’s most pessimistic strategists said Monday that he’d stayed bearish on stocks for too long this year, missing out on the massive AI-fueled rally in the process.

“We were wrong,” Morgan Stanley CIO Mike Wilson said in a note to clients seen by Insider.

“2023 has been a story of higher valuations than we expected amid falling inflation and cost cutting,” he added.

Many analysts predicted stocks would have a disappointing 2023 at the start of this year, with the Federal Reserve still hiking interest rates and economists fretting about a potential recession.

But the asset class has performed far better than they expected thanks to cooling inflation and the rise of artificial intelligence, with the benchmark S&P 500 index up 18% year-to-date.

Wilson remains downbeat on stocks despite failing to call that rally.

By June 2024, his team expects the S&P 500 to fall to 4,200 points – around 8% below the level it traded at as of Monday’s closing bell.

The Morgan Stanley strategist warned rapidly falling inflation could soon start to drag down – rather than boost – equities, by chipping away at listed companies’ nominal revenue and earnings.

“We believe inflation is now falling even faster than the consensus expects, especially the inflation received by companies,” he wrote in Monday’s note. 

“With price being the main factor that has held sales growth above…

Read More: “We Were Wrong” to Write Off Stocks’ AI-Fueled Rally, Morgan Stanley Says

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