Morgan Stanley’s Mike Wilson sees a dangerous trap. “Last week’s price action showed signs of panic by investors who are afraid they’ll miss the next bull market. We believe this will prove to be a head fake rally like last summer’s for many reasons,” Wilson told clients in a Sunday note. “With the index showing some signs that it wants to break out, market internals are much less attractive today and leadership has changed dramatically,” he says. For example, he sees not just the top 10-20 stocks looking expensive, but the S&P 500 median stock forward price/earnings [P/E] ratio at 18.3 times, and S&P 500 ex-tech median P/E at 18 — both within the top 15% of historical levels. Second, a “very healthy re-acceleration” is baked into second-half consensus forecasts for earnings, but Morgan Stanley’s forecasts “continue to point materially lower.” Wilson says their own model has been highly accurate over time and recently. He said they started warning of an earnings recession a year ago, and got a lot of pushback. “However, our model proved quite prescient based on the results and is now projecting a much more dire outcome than consensus. Given its historical and more recent track record, we think consensus estimates are off by as much as 20% for this year,” said Wilson. What else? Stocks are pricing in Fed cuts before year end without “material implications” for growth, while Wilson sees easing only if a recession is clearly coming, or bank stress is spreading. Other worries: signs of waning consumer strength, and the possibility that raising the debt ceiling will weigh on market liquidity due to sizeable Treasury issuance seen in the next six months after it passes. Also seeing trouble on the horizon is Michael Kramer, portfolio manager of the Mott Capital Thematic Growth Portfolio. In a Substack post, he talks about a stalemate that will be tricky for investors to navigate. “Presently, the options market does not seem to provide the equity market with the necessary impetus to move higher. As long as this situation persists, both the index and the bulls remain trapped. While it is possible for the index to reach 4,225, I have reservations about its ability to surpass that level given the prevailing dynamics,” he said, but also act as sellers of the S&P 500 below 4,150. NN: A crash is coming its a matter when!