Bulls beware: "The best contrarian indicator in the US stock market" leaving may signal a repeat of the 1999 Internet bubble peak

Last week, it was reported that Marko Kolanovic, the chief market strategist at Morgan Stanley, is resigning. Known as the "best contrarian indicator for the U.S. stock market" and a big player who perfectly avoided the bull market over the past year, his departure may not be good news for the bullish sentiment in the U.S. stock market.

In Shakespeare's play "The Tempest," there is a famous line: "What's past is prologue." In the eyes of some Wall Street insiders, this phrase also applies to Kolanvovic's resignation. The media pointed out that Kolanvovic's departure after nineteen years at Morgan Stanley reminded many traders, bankers, and analysts of Charles Clough, the former chief investment strategist at Merrill Lynch who resigned nearly twenty-five years ago.

On August 27, 1999, Clough, then one of the most steadfast bearish analysts on Wall Street, resigned. Although his views were once highly respected, his predictions for the U.S. stock market were completely wrong, maintaining a pessimistic attitude even as the stock market continued to rise. From the early 1995 to the end of the 20th century, the S&P 500 index surged by 220%. Interestingly, Kolanvovic also misjudged the market trend during the recent years of the U.S. stock market's rise.

According to Wall Street News, when the S&P 500 index hit a milestone high at the beginning of 2022, Kolanovic remained bullish all the way, advising clients to significantly increase their holdings in U.S. stocks. As a result, from January to October, the S&P fell by nearly 20%. He switched to a bearish view on U.S. stocks starting from the end of September 2022, advising clients to reduce their U.S. stock positions. However, the S&P has been rising steadily since its low point in October of the same year, with a cumulative increase of over 50%, perfectly illustrating what it means to be the best contrarian indicator for the U.S. stock market.

Until the news of his resignation, Kolanovic and some strategists at Morgan Stanley continued to maintain a bearish view on U.S. stocks. Just two weeks ago, they reiterated their bearish stance in a report, predicting a nearly 25% decline in the S&P by the end of the year, and emphasizing the "terrifying" lack of breadth in the current U.S. stock market.

Commentators noted that Clough resigned at the peak of the dot-com bubble, and six months after his resignation, in March 2000, the dot-com bubble began to burst. On April 3 of the same year, the Nasdaq hit its largest percentage decline to date, followed by a continuous decline until the end of 2001, with more than half of the market value evaporating. It was not until 2015 that the market returned to its 2000 high. Some investors are now speculating whether the recent resignation of the renowned bearish U.S. stock analyst Kolanovic on Wall Street signals the peak of the current U.S. stock market rally.

Furthermore, the media mentioned that Kolanovic is not the only bearish figure to exit the stage. A few months ago, another figure known for incorrectly predicting a sharp drop in U.S. stocks, Mike Wilson of Morgan Stanley, resigned from his ten-year position as chairman of the Global Investment Committee at the firm, and since then, his doubts about the rise in U.S. stocks have diminished.

Founder and President of Rosenberg Research, David Rosenberg, who previously served as an economist at Merrill Lynch, accurately predicted the issues the U.S. economy might face before the global financial crisis erupted. He commented that Kolanvovic's departure is likely one of the characteristics of a market peak.

Last week, the media reported that a key reason for Kolanvovic's departure was likely a series of misjudgments in the U.S. stock market during his tenure. Rosenberg believes that in many ways, this is an old tradition on Wall Street. If you go against the trend in a bull market, both clients and employers will become increasingly dissatisfied with you