Goldman Sachs: Liquidity Squeeze is the Main Threat to the US Stock Market

BlockBeats News, June 23rd — Morgan Stanley's Chief Investment Officer and Chief US Equity Strategist, Mike Wilson, stated that despite the stock market weakness and a flattening yield curve, last week's FOMC meeting led by Fed Chair Powell was a good and necessary first step in rebuilding the Fed's credibility. Wilson noted that since Powell's nomination in February, the S&P 500 Index has risen nearly 40% against gold, which he sees as a strong vote of market confidence in the new chair's ability to restore policy discipline. Morgan Stanley's strategist pointed out that liquidity, not interest rate hikes, is the main risk the stock market faces recently. He mentioned that the size of the reserve management plan has fallen by about 75% from its peak, and Treasury repo sizes have also been cut by 50%.

Wilson warned that accelerated loan growth has worsened liquidity tightening, as the real economy absorbs more capital while experiencing reduced balance sheet support. He expects the US stock market to be volatile in July and could see a pullback, with the next leg of the earnings-driven bull market rally postponed until liquidity constraints ease. Wilson also expressed support for Powell's approach of reducing excessive forward guidance, believing that the market should react to newly released data rather than trying to predict the Fed's statements. (FXStreet)