Morgan Stanley’s Analysis Points to a Possible Stock-Market Rally in 2023

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Morgan Stanley’s top U.S. equity strategist, Michael Wilson, known for his bearish outlook, is starting to see potential for a continuation of the stock-market rally in 2023. Wilson, who accurately predicted the inflation-driven selloff of 2022, shares his analysis with clients in a recent note.

According to Wilson, the current rally in U.S. stocks can be attributed to a combination of policy-driven factors and the late stage of the economic cycle. Fiscal stimulus measures, including robust government spending, coupled with support from major central banks worldwide, have contributed to the rally. Additionally, there is growing optimism that the Federal Reserve can transition to an easier monetary policy given the decline in inflation.

In drawing parallels to past market conditions, Wilson references the similarities between this year’s rally and the one seen in 2019. Back then, the Federal Reserve’s decision to shift from raising to cutting interest rates fueled a strong rally that lasted until the outbreak of the COVID-19 pandemic. Wilson notes that in both cases, the rally was mainly driven by market multiples rather than earnings.

Similar to 2019, growth stocks, particularly large-cap technology names known as the “Magnificent Seven,” are leading the way in 2023. Wilson and his team highlight how the composition of the current market mirrors that of 2019, with technology-led growth outperforming defensive sectors like consumer staples.

Overall, Wilson’s analysis suggests that the stock-market rally may have further room to run in 2023, supported by favorable policy conditions and similarities to past periods of market strength.


In a recent discussion, Wilson delved into the possibility of stocks being in a new cyclical upturn. He highlighted key developments that could potentially inspire a bullish outlook on the market. However, Wilson maintained that certain indicators need to show improvement before adjusting their stance on this matter.

Treasury Bill Yields

Treasury bills with short lifespans continue to offer highly attractive yields, even surpassing those seen in the past two decades. As of Wednesday, the six-month bill yield stood at an impressive 5.485%, according to FactSet data.

Improving Market Breadth

Over the course of the summer, market breadth has displayed signs of improvement. More stocks have been advancing, consequently boosting the S&P 500 equal-weighted index. This index reflects what the overall index would look like if each stock held an equal influence. Notably, the equal-weighted index has experienced an 8.1% increase in 2023, as per FactSet data.

Shifting Trends

While the S&P 500, which is weighted by market capitalization, has enjoyed a substantial 17.7% gain, there are indications of a potential shift in this pattern. In the past month, the equal-weighted S&P 500 (XX:SP500EW) has outperformed its traditional counterpart (SPX), experiencing a 2% increase compared to a roughly 1.5% gain for the latter.

Recent Market Performance

On Wednesday, U.S. stocks are expected to conclude with lower figures. The S&P 500 is on track for its first daily drop of over 1% since March 23, with a decline of 1.4% as per FactSet data. The Dow Jones Industrial Average (DJIA) has fallen by 324 points or 0.9% to reach 35,304, while the Nasdaq Composite (COMP) has experienced a decline of 309 points or 1.4% to reach 13,975.

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