The Morgan Stanley executive who nailed the end of the correction in March warns that the stock market could head to lower levels if one overhang is not resolved soon.
In a new Bloomberg interview, CIO Mike Wilson says he’s keeping an eye on the price of oil, noting that it needs to decline significantly if the market is to sustain its bullish momentum.
“That’s the $64 trillion question: how long will it take for oil prices to subside and get to a level that’s manageable? $126 is not manageable. That will probably have at least a 10% hit to earnings growth in the US. We’ve calculated that. The other thing to think about: the US is somewhat insulated from this conflict geographically, and we have our own oil supply. It doesn’t mean that oil prices won’t rise here, too, but there is going to be a bid for US assets over international assets if this thing persists.”
Brent Crude Oil (BRENT) is currently valued at $116.
While the market believes that lower oil prices are in sight, Wilson warns that stocks will witness another correction if the bet does not pay off in the coming months.
“If oil prices stay at these levels for another three or four months, yeah, the stock market’s going to trade lower for sure. But what I’m saying, and I was saying earlier, is the market is assuming, maybe right, maybe wrong, that this will end up resolving itself over the summer.”
The S&P 500 just recorded a fresh all-time high on Thursday’s trading session before closing at 7,209.
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