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Morgan Stanley’s Mike Wilson believes stocks are on a collision course with more pain due to the economic slowdown.
The firm’s chief U.S. equity strategist and chief investment officer said on CNBC’s “Fast Money” that investors should resist putting their money to work in stocks despite the market’s post-Fed-decision jump.

Morgan Stanley is urging investors to resist putting their money to work in stocks despite the market’s post-Fed-decision jump.
Mike Wilson, the firm’s chief U.S. equity strategist and chief investment officer, said he believes Wall Street’s excitement over the idea that interest rate hikes may slow sooner than expected is premature and problematic.

“The market always rallies once the Fed stops hiking until the recession begins. … [But] it’s unlikely there’s going to be much of a gap this time between the end of the Fed hiking campaign and the recession,” he told CNBC’s “Fast Money” on Wednesday. “Ultimately, this will be a trap.”
According to Wilson, the most pressing issues are the effect the economic slowdown will have on corporate earnings and the risk of Fed over-tightening.
“The market has been a bit stronger than you would have thought given the growth signals have been consistently negative,” he said. “Even the bond market is now starting to buy into the fact that the Fed is probably going to go too far and drive us into recession.”

‘Close to the end’

Wilson has a 3,900 year-end price target on the S&P 500, one of the lowest on Wall Street. That implies a 3% dip from Wednesday’s close and a 19% drop from the index’s closing high hit in January.
His forecast also includes a call for the market to take another leg lower before getting to the year-end target. Wilson is bracing for the S&P to fall below 3,636, the 52-week low hit last month.

“We’re getting close to the end. I mean this bear market has been going on for a while,” Wilson said. “But the problem is it won’t quit, and we need to have that final move, and I don’t think the June low is the final move.”
Wilson believes the S&P 500 could fall as low as 3,000 in a 2022 recession scenario.
“It’s really important to frame every investment in terms of ‘What is your upside versus your downside,'” he said. “You’re taking a lot of risk here to achieve whatever is left on the table. And, to me, that’s not investing.”
Wilson considers himself conservatively positioned — noting he’s underweight stocks and likes defensive plays including health care, REITs, consumer staples and utilities. He also sees merits of holding extra cash and bonds at the moment.
And, he’s not in a rush to put money to work and has been “hanging out” until there are signs of a trough in stocks.
“We’re trying to give them [clients] a good risk-reward. Right now, the risk-reward, I would say, is about 10 to one negative,” Wilson said. “It’s just not great.”
Disclaimer

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Stock futures moved slightly lower in overnight trading after markets staged a major rally on Wednesday following another 0.75 percentage point hike from the Federal Reserve.
Futures tied to the Dow Jones Industrial Average slipped 27 points, or 0.08%. S&P 500 futures lost 0.12% and Nasdaq 100 futures dropped 0.35%.

Shares of Meta Platforms dipped 3% in extended trading on the back of disappointing quarterly results while Ford gained more than 5% after a beat on the top and bottom lines, and as it raised its dividend. Teladoc’s stock cratered more than 22% after taking another large goodwill charge.
Following the rate hike from the Fed, DoubleLine Capital’s CEO Jeffrey Gundlach told CNBC’s “Closing Bell Overtime” he believes the central bank is no longer behind the curve on inflation and Powell has regained credibility.
“This market reaction seems less of a sugar high than the prior two in June and May,” Gundlach said.
The after-hours moves came after markets saw a broad-based rally during regular trading on Wednesday as the central bank hiked rates by another 75 basis points and investors continued to bet on whether the Fed can halt surging prices without pushing the economy into a recession.
All S&P 500 sectors ended the day higher, with communications services posting its best daily performance since April 2020.

During Wednesday’s regular trading session, the Dow gained 436.05 points, or 1.4%, the S&P 500 added 2.62% and the Nasdaq Composite closed 4.06% higher, boosted by shares of Alphabet and Microsoft.
“For the most part, what’s really driving this move is that the economy is still performing okay and it looks like the Fed is probably going to slow the pace of tightening down by the next policy meeting,” said Ed Moya, Oanda’s senior market analyst.
Investors have grown increasingly concerned in recent months that the central bank’s attempts to tame surging prices would move the economy closer to a recession, if it hasn’t already entered one.
Fed Chair Jerome Powell on Wednesday said during a press conference he does not believe the economy has entered a recession.
“I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well,” he said.
Investors looking for further clues into the state of the economy are awaiting a reading on second-quarter GDP slated for Thursday. While two back-to-back negative quarters of growth is viewed by many as a recession, the official definition is more nuanced, taking into account additional factors, according to the National Bureau of Economic Research.
Economists surveyed by Dow Jones expect the economy to have barely expanded last quarter after contracting 1.6% in the first.
On the earnings front, investors are looking ahead to results from Apple, Amazon, Intel and Comcast slated for Thursday.

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A logo of Meta Platforms Inc. is seen at its booth, at the Viva Technology conference dedicated to innovation and startups, at Porte de Versailles exhibition center in Paris, France June 17, 2022.
Benoit Tessier | Reuters

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Signage is displayed outside a Chipotle Mexican Grill Inc. restaurant in San Francisco, California, U.S., on Monday, July 20, 2020. Chipotle is scheduled to release earnings figures on July 22.
David Paul Morris | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Chipotle Mexican Grill– Shares of Chipotle surged more than 14.7% after the restaurant chain reported quarterly earnings Tuesday after the bell. Profits improved mostly due to price hikes to offset inflation, and the company said another increase is coming in August. UBS on Wednesday reiterated Chipotle as a buy following the results.

Alphabet — The Google parent jumped 7.7% after showing strong year-over-year search revenue growth in the recent quarter. Despite a miss on the top and bottom lines, results were better than feared.
Microsoft — The Windows and Xbox maker climbed more than 6.7% after issuing a rosy income forecast for the year ahead. However, Microsoft reported quarterly results that missed analysts’ expectations on both its top and bottom lines. Microsoft turned in the slowest revenue growth since 2020, at 12% year-over-year, in the second quarter.
Shopify — Shopify advanced 11.7% even though the e-commerce platform posted disappointing earnings and issued weak forward guidance. It said inflation and rising interest rates will hurt consumer spending, reiterating what it said on Tuesday when it announced layoffs.
Enphase Energy — The solar equipment stock rocketed nearly 18% higher after posting strong results for the recent quarter. Enphase said strong growth in Europe amid surging natural gas prices helped results.
PayPal — PayPal shares rallied 12.2% on the back of a report from the Wall Street Journal that activist investor Elliott Management took a stake in the company.

Teva Pharmaceutical — The Israel-based pharmaceutical company’s stock soared 21.1% after it reached a tentative settlement to pay more than $4 billion for its alleged role in the opioid crisis.
Spotify —  Shares added 12.2% after the music streaming service reported a 14% increase in premium subscribers in its most recent earnings report. Spotify reported a worse-than-expected quarterly loss, but exceeded analysts’ revenue estimates.
Garmin – Shares of the electronic device company dropped more than 8% after second-quarter sales declined to $1.24 billion. Analysts surveyed by Refinitiv were expecting $1.34 billion. The company pointed to a strong dollar and supply chain issues as reasons for the weakness. Garmin’s adjusted earnings per share came in at $1.44, or 4 cents better than estimates.
Hilton – The hotel stock rose almost 7.5% after beating estimates on the top and bottom lines for the second quarter. Hilton reported $1.29 in adjusted earnings per share on $2.24 billion of revenue. Analysts surveyed by Refinitiv were expecting $1.04 in earnings per share on $2.08 billion of revenue. Hilton said its revenue per-available-room was ahead 54% compared with the same quarter last year. The hotel chain also raised its full-year earnings guidance.
— CNBC’s Tanaya Macheel, Jesse Pound, Sarah Min, Carmen Reinicke and Yun Li contributed reporting.

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“I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well,” Powell said.
Wednesday’s rate hike marks the latest move in the Fed’s efforts to tamp down the strongest inflationary pressures in roughly four decades.

Federal Reserve Chairman Jerome Powell said Wednesday he does not believe the U.S. economy is in a recession as the central bank raised rates further to fight inflation.
“I do not think the U.S. is currently in a recession and the reason is there are too many areas of the economy that are performing too well,” Powell said at a press conference following the Fed’s decision to raise rates by 0.75 percentage point for a second consecutive time. “This is a very strong labor market … it doesn’t make sense that the economy would be in a recession with this kind of thing happening.”

Wednesday’s rate hike marks the latest move in the Fed’s efforts to tamp down the strongest inflationary pressures in roughly four decades. Markets jumped after the increase was announced, with the Dow Jones Industrial Average adding more than 450 points and the tech-heavy Nasdaq Composite surging 4%.
Investors have been fearing the Fed’s hiking campaign may tip the economy into a recession, but Powell also said the central bank will be closely watching economic data as to determine future moves. While another large hike may be necessary, he added that there will come a point when the Fed needs to slow the pace of increases.
Investors will get another data point that’s important to the recession debate this week.
The preliminary gross domestic product reading for the second quarter is due Thursday, with economists polled by Dow Jones expecting the economy to have barely expanded — following a 1.6% contraction in the first quarter.
Many on Wall Street refer to two consecutive negative quarters as a recession, but the official definition takes into account more factors than just GDP.

Powell noted Wednesday that he hasn’t seen the GDP report yet, but that he’s waiting to see what it says.
“You tend to take first GDP reports with a grain of salt,” he said.

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Check out the companies making headlines before the bell:
Boeing (BA) – Boeing posted a wider-than-expected quarterly loss with revenue that fell below consensus estimates. However, Boeing reported positive operating cash flow and, unlike in prior quarters, did not see any charges related to the production of its 737 MAX jet. Boeing jumped 4.4% in premarket action.

Hilton Worldwide (HLT) – Hilton rallied 4.8% in the premarket after the hotel operator’s second-quarter results beat top and bottom line estimates. Hilton also raised its full-year forecast, as travel demand continues to rebound.
Spotify (SPOT) – Spotify reported a wider-than-expected quarterly loss, but its revenue exceeded analyst forecasts as it saw a 14% increase in paying subscribers for its premium streaming service. Spotify jumped 6% in premarket trading.
Garmin (GRMN) – The GPS device maker’s stock slumped 9.3% in the premarket after its quarterly earnings beat estimates, although revenue fell short of analyst predictions. Garmin said its results were negatively affected by underperformance in its fitness segment.
Tempur Sealy (TPX) – The mattress retailer’s stock slid 6.9% in the premarket after its quarterly earnings and revenue missed analyst forecasts. The company said macroeconomic factors contributed to a deteriorating operating environment in North America. Tempur Sealy also cut its full-year forecast.
Shopify (SHOP) – The e-commerce platform provider slumped 6.8% in premarket action after posting a wider-than-expected loss and saying losses will increase in the current quarter. Shopify said inflation and rising interest rates will hurt consumer spending.

Microsoft (MSFT) – Microsoft gained 3.5% in the premarket despite missing on both the top and bottom lines for its latest quarter. The company saw its slowest earnings growth in two years amid a slowdown in its cloud business. Microsoft, however, issued an upbeat outlook, saying currency-adjusted sales and operating income will increase by a double-digit percentage this quarter.
Alphabet (GOOGL) – Alphabet also rallied, rising 3.7% in premarket action, even though its quarterly sales and profit missed Wall Street forecasts. The Google parent’s results were impacted in part by a pullback in spending by advertisers, but some investors had apparently braced for even worse results.
Chipotle Mexican Grill (CMG) – Chipotle surged 9% in premarket trading, with the restaurant chain operating reporting better-than-expected earnings for its latest quarter. Chipotle was able to offset an increase in costs with several rounds of price hikes.
PayPal (PYPL) – PayPal added 6.8% in the premarket after the Wall Street Journal reported that activist investor Elliott Management took a stake in the company. The size of the stake and Elliott’s intentions could not be learned.
Teva Pharmaceutical (TEVA) – Teva shares surged 22.9% in premarket trading after it reached a national settlement worth up to $4.25 billion over its alleged role in the opioid crisis.
Enphase Energy (ENPH) – Enphase reported better-than-expected sales and profit for its latest quarter, sparking a 9% premarket rally in its shares. The solar equipment company’s results benefited from a jump in its European business.

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Prices for goods in the U.S. are expected to continue rising through 2023.
The Federal Reserve waited too long to respond to early signals of inflation, according to independent economists and outside policymakers.
The central bank is correcting the course by raising its interest rate targets at the fastest pace in more than two decades.

Top officials at the Federal Reserve were seeing inflation data come in very hot for months before policymakers moved to wind down monetary policies that were stimulating the economy.
A chorus of analysts, economists and former policymakers have chimed in, saying that was a mistake.”The forward guidance, overall, slowed the response to the Fed to the inflation problem” former Federal Reserve Chair Ben Bernanke told CNBC.Treasury Secretary Janet Yellen also acknowledged the misdiagnosis coming from her own department, and that of current Fed Chair Jerome Powell.

“Both of us could have probably used a better word than ‘transitory,'” she told senators in June when asked about their remarks about inflation last year and their slow response to price pressures.It’s the Fed’s task to tame inflation that is running at a pace not seen in four decades. To do so, it has been hiking interest rates at a fast pace.Reining in inflation may take more aggressive monetary policy moves than the central bank has embraced in recent years, according to economists like Judd Cramer. His research indicates that the Fed may need to hike rates to levels not seen in decades to force rising prices into retreat.
“If inflation is going to be high and remain higher, that means that the neutral rate in the economy is also going to be higher because the price of goods are going up,” he said to CNBC.
A June survey of inflation expectations from the New York Federal Reserve suggests the price hikes aren’t over yet. The group predicts that by June 2023, prices will have risen approximately 6.8% from their current levels.Maintaining stable prices and maximizing employment are the Fed’s top responsibilities. Jobs appear plentiful in the U.S., which may give the central bank cover to raise interest rates at an aggressive pace through 2023.
The Federal Reserve was contacted for comment but is in a media blackout before the expected rate announcement later today.Watch the video above to learn more about the Fed’s missteps on inflation, along with its plan to get the economy back on track.

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The bank posted a net loss of 1.593 billion Swiss francs ($1.66 billion) on Wednesday.
It also announced the immediate resignation of CEO Thomas Gottstein, who will be replaced by asset management CEO Ulrich Koerner.
Asked if he had any plans to sell the company or merge with another bank, Lehmann said “that is a clear no.”

Speculation has emerged in recent months that Credit Suisse may be considering a capital raise.
Thi My Lien Nguyen | Bloomberg | Getty Images

Credit Suisse Chairman Axel Lehmann denied any intention to sell or merge the embattled Swiss lender after it reported a massive second-quarter loss.
The bank posted a net loss of 1.593 billion Swiss francs ($1.66 billion) on Wednesday and announced the immediate resignation of CEO Thomas Gottstein, who will be replaced by asset management CEO Ulrich Koerner.

Credit Suisse vowed to ramp up its efforts to overhaul the group’s structure in the wake of mounting losses and a string of scandals — most notably the Archegos hedge fund collapse — that have resulted in substantial litigation costs.
Speculation has emerged in recent months that Credit Suisse may be considering a capital raise and even a possible sale of the company, but Lehmann told CNBC’s Geoff Cutmore Wednesday that neither was in the cards.
“On capital, we reported, despite the loss today, a CET1 ratio of 13.5%. I am happy to see that number and we will guide the market also, in light of the uncertainty, that we are certainly going to defend our CET1 ratio until the end of the year, between 13 and 14%,” Lehmann said. CET 1, or common equity tier one capital, ratio is a measure of a bank’s solvency.
“So I think we are good on that one, and we will manage that very, very tightly.”

He also branded some of the speculation — such as the suggestion in a Swiss blog early last month that U.S. bank State Street could be readying a takeover bid for Credit Suisse — as “quite ridiculous.”

Asked if he had any plans to sell the company or merge with another bank, Lehmann said “that is a clear no.”
Credit Suisse has launched a strategic review as it looks to cut costs, redirect its wealth and asset management operations and overhaul its compliance and risk management functions. 
In Wednesday’s earnings report, the bank said it will provide further details on the progress of the review in the third quarter.
“We will be even more focused going forward on our wealth management franchise, multi-specialist asset manager and the very, very strong Swiss business,” Lehmann said.
“We will have a highly competitive banking business and we will align the markets business better to serve the needs of our wealth management and Swiss clients.”
He added that the board wishes to bring down its absolute cost base to less than 15.5 billion Swiss francs in the medium term.
However, Lehmann refused to be drawn on how many job losses this will entail, instead promising more detailed plans for the cost-cutting strategy in the third-quarter earnings.

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