Mike Wilson, Chief U.S. Equity Strategist and Chief Investment Officer for Morgan Stanley, said that the results of the Fed's May meeting, which will end on Wednesday, may unpleasantly surprise investors expecting monetary policy easing later this year, and cause a short-term drop in the stock market. According to the CME FedWatch Tool, markets see an 86,3% chance of another 25 basis point rate hike at the Fed's May meeting, bringing them up to 5.00-5.25% - a level at which they are likely to remain at least until November.
"If the Fed statement is more hawkish than market participants expect, it could trigger a short-term correction of the stock market and cause a reassessment of the prospects for monetary policy easing," Wilson said, adding that the S&P 500 index has shown growth in the last two months, despite banking turmoil and fears of a recession.
"Investors were encouraged by the favorable corporate reporting and expected that any slowdown in economic growth would be moderate. Nevertheless, hopes for a recovery in profits in the second half of this year and throughout 2024 are exaggerated," Wilson warned.