The stock market is vulnerable to sharp sell-offs before an 'unequivocally bullish' 2021, says Morgan Stanley's investment chief

Bloomberg TV

  • After raising his 2021 price target for the S&P 500 to 3,900 on Monday, Mike Wilson is telling investors with a shorter time horizon to stay cautious. 
  • In an interview with Bloomberg on Tuesday, Morgan Stanley’s chief investment officer said that rising coronavirus case counts and run-off elections may lead to volatility in the next few months.
  • Wilson’s team wrote in a note that the S&P 500 could fall up to 12.5% in the near term.
  • “We find ourselves at a juxtaposition between the 12-months view, which is unequivocally bullish, with this year-end conundrum,” Wilson said. 
  • He added that at the S&P 500’s current levels, the risk reward “isn’t great” for new money entry.
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After forecasting that the S&P 500 will jump another 8% from current levels by the end of 2021, Morgan Stanley’s Mike Wilson said his short-term view is less rosy.

In a Tuesday interview with Bloomberg, the chief investment officer said the market may be vulnerable to several drawdowns in the next few months and short-term investors should be cautious.

“We find ourselves at a juxtaposition between the 12-months view, which is unequivocally bullish to us, with this year-end conundrum,” Wilson said. “We have to deal with rising case counts, not to mention just getting through the run-off elections, and positioning and sentiment which has gotten a little frothy.”

In the Monday note in which Wilson’s team upped their 2021 S&P 500 price target from 3,350 to 3,900, the firm also said that in the near term investors should expect a range of 3,150 to 3,550 for the benchmark index. The S&P 500 is currently at 3,600, meaning the index could fall up to 12.5% if it hits the low-range of Morgan Stanley’s forecast.

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While Wilson is telling long-term clients to stay committed to a bullish 2021, he said institutional clients who are more trading-oriented should brace for volatility in the near-term.

“Most people would assume you can have a two, three, four percent drawdown at any time, that can easily be managed, and you should definitely stay committed through that. If you think it’s going to be more significant than that, then you probably need to de-risk a bit,” said the CIO.

He added that at the S&P 500’s current levels, the risk reward “isn’t great” for new money entry.

Wilson isn’t the only stock strategist who said that the ideal portfolio plan right now depends on an investor’s time horizon. 

On Monday, Credit Suisse chief US equity strategist Jonathan Golub told CNBC that there’s risk of pullbacks in the next two to three months, but he would be “buying like crazy right now” if he were a long-term investor.

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