A sharp drop validates bearish predictions, with the risk of economic recession becoming a "stumbling block" for the US stock market

According to the Zhitong Finance and Economics APP, the recent sharp drop in the US stock market proves that some of Wall Street's most well-known short sellers may be correct, as they are doubling down on warning about the risks of economic slowdown. Michael Wilson, Chief US Equity Strategist at Morgan Stanley, who has been pessimistic about US stocks, stated that investors are more pessimistic about economic growth, and last week's data "challenged the soft landing views of some market participants." He said, "The bottom line is that consumer spending has been weakening this year. The risk-return profile of the stock market remains generally unfavorable. At this stage, it is difficult to say that many stocks are cheap if earnings revisions do not clearly turn the situation around."

Due to the drag from tech stocks, the US stock market plummeted in early August, partly due to investors' concerns that the Federal Reserve's delay in rate cuts could lead to an economic recession. Data released last Friday showed that the US added only 114,000 non-farm jobs in July, with the unemployment rate rising to 4.3% and hitting the "Sam Rule."

It is worth mentioning that Michael Wilson's bearish view ended in 2022. Since his predictions did not materialize in 2023, he has not made any major forecasts for the S&P 500 index this year, and his forecast for the mid-2025 period has become more optimistic.

Meanwhile, Marko Kolanovic, Chief Market Strategist at JPMorgan Chase, is one of the few bears on Wall Street today. Mislav Matejka stated on Monday that due to weak corporate activity, declining US bond yields, and deteriorating corporate earnings prospects, the stock market will continue to be under pressure. He said, "This does not look like the 'recovery' backdrop people hope for." "We remain cautious about the stock market and expect a phase where 'bad news is bad news' will come. In this context, risk trading should not be conducted." Earlier this year, weak economic data often boosted market expectations of Fed rate cuts and drove stock market gains.

Mislav Matejka pointed out that the Fed will start easing policy, but more in a passive, responsive manner to softening growth, "which may not be enough to drive a rebound." Mislav Matejka's year-end target for the S&P 500 index is 4200 points, implying a further 21% decline from last Friday's close.

However, Mislav Matejka's views contrast sharply with those of JPMorgan's trading desk. John Schlegel, Head of Market Positioning at JPMorgan, stated that the market rotation from the tech sector may have "essentially completed," and the market is approaching a tactical buying opportunity on dips. However, he also added that whether the stock market can rebound strongly depends on future macroeconomic data Currently, it appears that the stock sell-off will continue on Monday. As of the time of writing, at the opening of the US stock market on Monday, the S&P 500 index fell by over 3%, while the NASDAQ Composite Index dropped by nearly 4%. In this context, both Mislav Matejka and Michael Wilson have expressed that they expect defensive stocks to outperform cyclical stocks that are more sensitive to the economy.