Morgan Stanley's chief strategist thinks investors are in for a bumpy ride after they realize there' [View all]

Morgan Stanley's chief strategist thinks investors are in for a bumpy ride after they realize there's no more Fed rate cut 'heroin'

With inflation falling from its 40-year high in June, investors are betting the Federal Reserve will end its interest rate hiking cycle and “pivot” to rate cuts this year, juicing markets like they did in the past. But some top Wall Street strategists warn that the rosy outlook for stocks may be overly optimistic.

Morgan Stanley’s chief investment officer and chief U.S. equity strategist, Mike Wilson, believes the Fed will keep rates higher for longer, and that corporate earnings will fall.

“Once people realize the Fed’s not cutting rates—there’s no more heroin, so to speak—then we’re going to price the fundamentals, which are clearly deteriorating in our view,” he told CNBC Tuesday.

Wilson argues Fed Chair Jerome Powell will “hold firm” and keep raising interest rates this year, arguing that there is “no incentive” for him to cut rates with the labor market remaining strong and China’s reopening after COVID lockdowns helping to boost inflation.