Morgan Stanley strategists warned that the crisis may be near as the dollar supply continues to shrink.
In this Monday's report, Mike Wilson, chief equity strategist at Morgan Stanley , said that even if the market bets on Fed to achieve a "dove-turn" from the start and cut interest rates in May next year, , but as global dollar supply is shrinking, the possibility of market volatility is still rising, so US stock may still decline in the foreseeable future.
Wilson was widely praised for correctly predicting the latest round of stock market bear market this year, and is also considered the firmest bear analyst for Wall Street .
Last week, Wilson issued a warning in the report that the overly strong trend of USD has caused an unsustainable situation for risky assets such as the stock market, and may even cause a new round of financial or economic crisis.
According to his forecast, every 1% rise in index will have a negative impact on S&P 500 index 's return. By the fourth quarter, the profits of the S&P 500 index component may fall by 10%.
Since September 6, the S&P 500 has fallen by more than 6.5%, and Wilson has further strengthened its forecast that the stock market will continue to fall until the end of 2022 this week.
He pointed out that rising interest rates will increase the borrowing costs for businesses and households, thus dragging down the economy; while a stronger dollar will make it more difficult for emerging economies to repay dollar bonds.
So, as interest rates continue to rise and the Fed continues to shrink its balance sheet, Wilson expects this could trigger a crisis in some countries, including the United States.
Wilson stressed that the problem has begun to appear: M2 data has begun to shrink in the past 12 months. Historical experience shows that the contraction of money supply is often correlated with the trend of the stock market.
Wilson believes that it remains to be seen whether the Fed stops hiking rate and hi shrinking is enough to avoid a crisis, but it is too late to avoid corporate profit recession. What's more, Fed Chairman Powell previously insisted that the Fed cannot risk cutting interest rates too early because of fear that inflation may become more entrenched.
On Monday, the UN Conference on Trade and Development said in a report that could seriously damage emerging economies if the Fed continues to raise borrowing costs.
Wilson added that stock markets may continue to fall before the Fed's adjustment policy finally arrives, and expectations for policy adjustments may be enough to trigger a sharp rise in the stock market, but the rise is short-lived.
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