Morgan Stanley's renowned "Big Short" on US stocks: The recent strong rebound in US stocks may be short-lived.

Wall Street's most famous bearish investor, Mike Wilson, Chief Investment Officer and US Equity Strategy Analyst at Morgan Stanley, wrote in his latest report on Monday that the recent strong rebound in the US stock market may be short-lived.

The heavyweight non-farm payroll report released last Friday unexpectedly showed a cooling of the strong US labor market, giving the Federal Reserve more reason to keep interest rates at their current high levels and not raise them further. As a result, both the US stock and bond markets saw further gains. The sharp rebound in US bonds last week also contributed to the surge in US stocks.

As of last Friday, the Nasdaq had risen for five consecutive days, with a gain of 1.38%, and had risen more than 1% for three consecutive days. The major US stock indices had their best weekly performance in at least a year: the Dow had its largest weekly gain since October 28 last year; the S&P, Nasdaq 100, and Nasdaq all had their largest weekly gains since November 11 last year; and the Russell 2000 rose 7.56%, its largest weekly gain since June 24 last year.

Wilson believes that although US stocks have recently rebounded from their lows and achieved their best weekly performance of the year, the upward trend is not sustainable. Prior to last week, the US stock market had fallen more than 10% from its year-to-date high in July. The S&P 500 index and the Nasdaq had both briefly entered a technical correction zone.

"Although we will remain open-minded, so far, US stocks appear more like a bear market rebound rather than the start of a sustained rally, especially considering the weak earnings revisions and macro data," Wilson said.

Despite the overall better-than-expected performance of US corporate earnings in the earnings season, Wilson remains cautious about corporate profits and believes that neither the technical nor fundamental aspects can provide support to the market.

Wilson said that in the past two months, both the breadth of earnings revisions and the breadth of market trends have significantly deteriorated. It is expected that there will be no exciting year-end rebound in the broad market indices until these factors reverse and stabilize.

Wilson also pointed out that the 7.5% earnings surprise of S&P 500 companies is still higher than the average level of 4.5%, but this is mainly due to "profit elasticity".

Wilson gained attention for correctly predicting the sharp decline in US stocks last year, but his judgment on the strong rebound in US stocks in the first half of this year was not accurate.

In late July of this year, faced with the strong rise of US stocks so far this year, Wilson admitted in a report to clients that his judgment on US stocks was wrong and that his bearish sentiment had lasted too long. In the context of declining inflation and cost-cutting, the valuation of US stocks in 2023 is higher than their expectations. However, Wilson remains cautious about the profitability of US companies, believing that the cooling of inflation means a weakening of companies' pricing power.

In subsequent reports, Wilson continued to be bearish on US stocks, for example:

• In early August, he pointed out that there are signs that the high fiscal spending that has supported US economic growth this year may not be sustainable, sounding the alarm for US stocks. The unexpected downgrade of the US sovereign credit rating by Fitch and the sharp drop in the bond market imply that future economic and corporate profit growth may be "disappointing," and investors should be prepared.In early September, he stated that the growth of the US economy this year is expected to be weaker than expected. The data for September and October may show signs of weakness, but many stocks and expectations have not yet reflected this. Stock investors in the US will soon be disappointed by this.