According to Morgan Stanley’s senior stock strategist Mike Wilson, technology and meme stocks are once again in the grip of a speculative surge, with some names likely to lose up to 20% of their value in a downturn.
“I do think people are going to get carried away with what they’ve been buying,” Wilson said in a Bloomberg interview on Tuesday, adding that while the stock rally in the fall of 2022 was based on fundamentals, the 2023 rally has been fueled by more speculation, which could be dangerous for investors jumping in on big tech names or well-known meme stocks that thrived during the pandemic.
“They have simply gone out of control again, especially in the setting of increased rates,” Wilson explained. “In my opinion, a lot of what has been dragged along here is now excessively speculative. It’s actually a little risky. And that is what you must be cautious of if it is in your portfolio. You have to get out of there,” He said in a warning.
He went on to say that there are “plenty” of companies that might go bankrupt, and that overvalued equities could fall 20% “no problem” as the speculative rally fades and the market corrects.
The rise that began in 2023 has already begun to stall in recent weeks, as investors brace for further Federal Reserve rate hikes. Fed Chair Jerome Powell began a two-day appearance to Congress in Washington, DC, on Tuesday, striking a hawkish tone. Fed fund futures traders are pricing in a larger rate hike at this month’s policy meeting.
While Wilson believes the bear market bounce has more legs, he has been negative on equities for months and has labeled this year’s advance a “bull trap” for investors. Previously, he predicted stocks were in the “death zone” because inflation would remain sticky and interest rates would rise, perhaps causing stocks to fall 26% in the following months.
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