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Morgan Stanley's Wilson says retest of S&P 500 lows unlikely

The Fearless Girl statue stands in front of the New York Stock Exchange near Wall Street. Some investors are wondering if the worst is over as dramatic price swings ease amid unprecedented stimulus efforts.

STOCKS notched their fastest bear market on record and then posted a near 20 per cent rally last week. Some investors, taking comfort in the many dramatic stimulus measures already underway, are wondering whether the worst of it might be over.

Going by Morgan Stanley's assumptions, stocks won't be plumbing those lows again anytime soon. At least that's the way Mike Wilson, the firm's chief US equity strategist, sees it.

While stocks might typically retest lows as the market configures a bottom, this time is different, he says, because of forced liquidations in every corner of the market, including in systematic strategies, as well as by passive, active and retail investors.

"In order to think that we're going to make a new low, you need to think that we're going to get another liquidation," he told Bloomberg TV's Jonathan Ferro in an interview on Monday.

"That liquidation phase probably doesn't happen again."

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In a separate note on Monday, Mr Wilson wrote that stocks didn't retest lows during the December 2018 rout, which happened under comparable forced-liquidation circumstances.

He forecasts the S&P 500 Index will end the year at 2,700, about 3.5 per cent higher from where it's currently trading.

As the coronavirus shocked the economy into a near-standstill and markets plummeted, some investors were forced to shed even their safest assets in an effort to cover losses.

Those dramatic price swings have eased amid unprecedented fiscal and monetary stimulus efforts in the US and around the globe. The US Congress last week passed a US$2 trillion stimulus package in response to the crisis - together with Federal Reserve actions, the legislation could amount to an injection of US$6 trillion into the economy.

A number of strategists - including those at JPMorgan Chase & Co. - have now called the low point for most risk assets.

The news flow would also have to get "extraordinarily worse" as investors are already aware economic data will significantly deteriorate.

The number of Americans filing for unemployment benefits surged to a record 3.3 million last week as businesses shuttered around the country. Analysts surveyed by Bloomberg expect 3.5 million claims when data is released on Thursday.

And while a forecast of as high as five million is dire, to be sure, it's "out there now", Mr Wilson said.

The fiscal stimulus passed by Congress last week should, in part, help to soften the hit to the economy, according to him.

"It won't prevent the recession, obviously - but it will cushion the blow and perhaps shorten the duration of what's going to be one of the worst recessions we've seen in a while," he said. BLOOMBERG

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