Why the stock-market rally can keep going, says Morgan Stanley strategist who only recently warned of a death zone

Here’s Deutsche Bank, summing up what’s at stake for the latter: “It’s fairly uncontroversial to say that the last payrolls report published on Feb. 3 was a huge moment, and one that started a series of events that has meant that the last month has been a struggle for most financial assets, especially bonds. As such if you thought the relatively random number generator that is payrolls is usually overhyped, you’ve seen nothing yet as we approach Friday’s big number,” wrote a team of strategists led by Jim Reid.

However, recent momentum for market does appear to have nudged one of Wall Street’s most bearish strategists to ease up a little on the gloom. Our call of the day returns to Mike Wilson, the Morgan Stanley strategist who two weeks ago warned that investors had pushed stocks into a death zone.

In a new note, the strategist points out how the S&P 500
SPX,
+0.17%
“survived a crucial test of support” last week by staying above the widely-watched 200-day moving average. Stocks could see some further gains in the short term if the dollar and interest rates continue to pull back, he said.

Wilson has targeted 4,150 as the next resistance area for the S&P 500, though he still doesn’t seem to be ready to give up on that death-zone prediction.

“While this is an unequivocal positive in the short term, we believe it does not refute the very poor risk reward currently offered by many stocks given valuations and earnings forecasts that remain way too high, in our view,” he said.

Wilson, who expects the S&P 500 will finish the year at 3,900 — the more bearish end of Wall Street’s wide-ranging forecasts — warned in late February that investors had been following stock prices to “dizzying heights once again,” driven by liquidity and greed. He said pricey valuations meant investors weren’t being compensated for risk.

Others are looking at bit past the 200-DMA, such as this fund manager who notes how tough the road will be beyond that line in the sand:

Our last word goes to Bill Blain, market strategist at Shard Capital, who has come to the conclusion that we are facing “directionless markets” and “a most dangerous moment.”

“There is no particular trend or belief driving prices. The equity bounce has gone. Bonds look tired. All the major themes are out there, clearly in play; inflationary expectations, interest rates, company valuations, the sustainability of national debt loads, geopolitics and global threats, but there is no particular momentum behind any of them. That will change in a flash – but how or when we simply don’t know,” Blain says in a blog post.

The markets

Stock futures
ES00,
+0.23%

YM00,
+0.04%

NQ00,
+0.41%
are struggling for traction, while the 10-year Treasury yield
TMUBMUSD10Y,
3.924%
is lower, at 3.919% after briefly topping 4% last week. Oil prices
CL.1,
-0.90%
are falling after China set a conservative growth target of “around 5%.” The dollar
DXY,
-0.11%
is slightly higher.

Also read: Here’s what analysts are saying about China’s new growth target.

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Tobacco maker Altria
MO,
+0.17%
announced a $2.75 billion deal for e-vapor product maker NJOY.

Tesla
TSLA,
-0.67%
late Sunday cut the prices of its Model S and Model X cars to help boost sales as the first quarter draws to a close. Shares aren’t doing much in premarket trading.

As part of a cost-cutting move, Amazon
AMZN,
+0.28%
will close eight of its cashierless convenience stores in San Francisco, New York City and Seattle.

Esperion Therapeutics stock 
ESPR,
-14.67%
tumbled 22% as investors questioned data it reported on a cholesterol drug for patients who can’t tolerate a statin. Nyxoah stock
NYXH,
+9.38%
climbed 19% after the medical technology company said it achieved key regulatory and clinical milestones.

A handful of U.S.-listed Chinese stocks are lower on the heels of that modest growth target. Alibaba
BABA,
-1.16%,
Nio
NIO,
-1.57%
and Baidu
BIDU,
-2.40%
are all down 1% or more.

Ciena
CIEN,
+6.56%
shares are climbing on an earnings beat from the optical networking group.

WW International (Weight Watchers)
WW,
-7.48%
will report after the close.

Norfolk Southern
NSC,
-0.89%
announced a six-point safety plan after last month’s derailment of a train in Ohio that was carrying hazardous materials.

Factory orders are due at 10 a.m., in a week that will end with nonfarm payroll data, in which we’ll see if January’s surge was a blip.  And biannual Congressional testimony from Fed’s Powell is scheduled for Tuesday and Wednesday.

Read: Powell to talk to Congress about the possibility of more interest-rate hikes, not fewer

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The chart

Why are most investors befuddled by inflation these days? The Twitter account behind Wasteland Capital has an idea. You just haven’t lived it yet, baby.

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