Wall Street analysts warn that stocks have soared past the point of stability and have entered a “death zone” in which they “cannot live for very long.”
Morgan Stanley strategist Mike Wilson has warned that the market is on the verge of a severe downward correction that will make many investors despair.
Mike Wilson’s grim prediction comes as the S&P 500 continues to rally, up 16% from its October lows and 6% since the start of this year. Morgan Stanley’s chief investment officer voted the No. 1 stock strategist in an October survey by Institutional Investor, drew on a comparison from Jon Krakauer’s ‘Into Thin Air,’ which details the tragic true story of three separate expeditions attempting to climb Mount Everest when the peak claimed its worst single-season death toll on record.
Wilson argued the benchmark equity index finds itself in the financial equivalent of the “death zone,” a term mountaineers use to refer to altitudes where oxygen is no longer sufficient to sustain human life for an extended period.
“Either by choice or out of necessity, investors have followed stock prices to dizzying heights once again as liquidity (bottled oxygen) allows them to climb into a region where they know they shouldn’t go and cannot live very long,” Wilson wrote, according to Market Watch. “They climb in pursuit of the ultimate topping out of greed, assuming they will be able to ascend without catastrophic consequences. But the oxygen eventually runs out and those who ignore the risks get hurt.”
By Wilson’s estimate, the S&P 500’s price-to-earnings ratio already increased to 18 by the end of last year from just 15 in October. He believes the index has now climbed to heights where the air is at its thinnest since the bull market began in 2009, with its P/E ratio currently sitting at 18.6.
Wilson thinks that the market will collapse some time this spring.
“As investors reached even higher levels, there is now talk of a ‘no landing’ scenario—whatever that means,” Wilson lamented. “Such are the tricks that the death zone plays on the mind—one starts to see and believe in things that don’t exist.”
This will probably fuel many a political campaign this year.
Cross-Posted with iPatriot