Morgan Stanley: The stock sell-off is going to get worse

FAN Editor

The stock market sell-off is only going to get worse, predicts Morgan Stanley’s chief U.S. equity strategist, Mike Wilson.

In a note to clients Monday, he wrote that the pain is not over for growth, discretionary and tech stocks, which been the final holdouts until last week.

“We continue to believe we are in the midst of a rolling bear market across all global risk assets caused by a drain in liquidity and peaking growth,” Wilson said.

“Sooner or later, the rolling bear will likely be back for more.”

On Monday, U.S. stocks failed to bounce back from last week’s sell-off. The Dow Jones Industrial Average closed 89.44 points lower, while the S&P 500 fell 0.6 percent and the Nasdaq Composite dropped 0.9 percent.

The action followed last week’s rout that saw the major indexes suffer their worst weekly loses since March thanks to fears about rapidly rising interest rates and a possible global economic slowdown.

Wilson said last week that those rising interest rates served as the “tipping point” for the rolling bear market to finally hit the U.S. and “take out the last holdouts.”

The move higher in rates is primarily due to the Federal Reserve accelerating its balance sheet reduction, along with the European Central Bank beginning to taper its quantitative easing program, he said in Monday’s note.

And he predicts the global liquidity issue is “going to get worse” as the end of the year approaches.

Wilson sees the S&P 500 trading in range of 2,400 to 3,000 for another year. He’s bullish on energy and defensives like utilities and industrials.

— CNBC’s Keris Lahiff and Fred Imbert contributed to this report.

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