Does the latest market rally still have legs? Will Santa Claus deliver the usual package of goodies for investors? Not likely, says Morgan Stanley (NYSE:MS) analyst Mike Wilson. Wilson looks for the recent rally to lose steam fairly soon.
Wilson pointed out that the current rally has been going on for quite some time. That suggests that the rally may not have much more life left to it. Indeed, several factors are coming together to limit the rally’s lifespan.
China’s ongoing fog of uncertainty, thanks to its Zero Covid policies, is casting doubt on supply chains. Moreover, the latest jobs report suggests that the labor market hasn’t cooled off much. That will keep ongoing issues between supply and demand running as a concern in the overall market.
However, reports of a weakening U.S. dollar and cooling inflation suggest that the rally may still have some life left to it. Strong dollar issues have recently hit several companies’ demand pictures and weighed on earnings reports.
Ultimately, Wilson advised investors to focus on “defensive” investments, particularly staple goods and healthcare, as there would still be unsettling elements in 2023. Particularly, Wilson looks for growth rates and inflation to continue their decline in the early months of next year.