Goldman Sachs "The Big Short": Excessive US fiscal spending is unsustainable, sounding the alarm for the US stock market.

Renowned bearish investor in US stocks and Morgan Stanley strategist, Mike Wilson, believes that there are signs indicating that the high fiscal spending supporting US economic growth this year may not be sustainable, sounding an alarm for the US stock market.

In his earnings report, Wilson stated that the unexpected downgrade of the US sovereign credit rating by Fitch and the sharp decline in the bond market "suggest that future economic and corporate profit growth may be disappointing, and investors should be prepared."

He pointed out that a significant force driving US economic growth is the continuous expansion of the government deficit, such as the Biden administration's trillion-dollar investments in infrastructure, environmental protection, and manufacturing.

Wilson believes that if government spending decreases due to political reasons or increased funding costs, corporate profits may further decline.

It is worth noting that Wilson, who has a long-term bearish view on the stock market, previously admitted in his report that he made a wrong judgment and underestimated the extent of the bull market in US stocks. In his report today (August 7th), he further explained that the reason for his misjudgment of the market was the US government's "fiscal stimulus":

"We found ourselves deviating from expectations this year, partly due to the return of fiscal stimulus, which will remain strong until 2023. This is something we did not take into account in our predictions. It is rare for the US to have such a large deficit with such a low unemployment rate."

So far this year, with inflation cooling down and positive signals from economic growth, the US stock market has risen by nearly 17%. However, the momentum came to a halt after Fitch downgraded the US sovereign credit rating, and the three major stock indices all fell last Wednesday.

Although economists have generally lowered their expectations for a US economic recession, strategists such as Michael Hartnett from Bank of America warn that there is still a significant possibility of economic contraction as the Federal Reserve tightens credit conditions. The strategy team at JPMorgan Chase also stated that the deterioration of economic activity is challenging analysts' predictions that profit decline will end in the third quarter.