Nvidia’s market reaction shows the rally in the US is over, says Wilson of Morgan Stanley

Nvidia's market reaction shows the rally in the US is over, says Wilson of Morgan Stanley

(Bloomberg) — US stocks’ decline Thursday despite a bumper report from Nvidia Corp. showed that this year’s rally is “tired” and portends more declines to come, according to Morgan Stanley’s Michael Wilson.

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The bearish strategist — who recently admitted he was too pessimistic in his 2023 outlook — said the broader market’s reaction to the US chipmaker’s implosion forecast was a perfect indicator of a market peak. The S&P 500 started the session higher, but fell 1.4% – its biggest drop in three weeks – at the close as the hype around artificial intelligence was overshadowed by higher bond yields.

“Markets top on good news and bottom on bad news,” Wilson said in an interview with Bloomberg Radio. “I can think of no better news than we got from that company,” he said, referring to Nvidia. The failed consolidation” is another negative technical sign that the rally has been exhausted. Now we will need a new story to get people excited, I don’t know what that story is.

US stocks are poised for their first monthly drop since February, as investors worry that central banks will remain hawkish for longer amid signs of resilience in the economy. The focus is now on Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole Economic Symposium later on Friday looking for clues about the path of interest rates.

Wilson said he expects Powell to reiterate that interest rates are likely to remain high for longer until inflation is under control. “It’s not a bad thing for the market, but it’s not a good thing either,” said the strategist. “I’m not going to look to today’s comments to salvage the situation.”

Michael Hartnett, Bank of America Corp. strategist, shares Wilson’s view that the support from AI will fade in the second half of 2023 as the effects of prolonged higher interest rates and declining central bank liquidity become more apparent.

Nvidia shares fell before the opening in New York on Friday. The previous session saw the stock erase almost all of the day’s gains at the close. Investors may have seen the company’s full value after rising 54% in the past three months, according to Steve Sosnick, chief strategist at Interactive Brokers.

“You didn’t get the institutional following that I think you got from your first purchase,” Sosnick said on Bloomberg Watch. “With no follow-up and maybe a little bit of profit-taking, you end up with a rather messy day and you end up with yesterday.”

(Adds Steve Sosnick’s comments from the seventh paragraph.)

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