- Morgan Stanley warned that American stocks could retreat in the coming months.
- The bank’s key analyst cited the ongoing earnings compression in the US.
- A sharp decline in stocks could have an impact on Bitcoin prices.
American stocks and cryptocurrency prices have been under pressure in the past few days as investors assess the ongoing earnings season and the actions of the Federal Reserve. Ethereum and Bitcoin prices have moved into a correction phase while the Dow Jones and Nasdaq 100 indices have stalled.
Morgan Stanley warning on stocks
In a note to investors, Morgan Stanley’s Mike Wilson warned that stocks could nosedive in the next few months as corporate profits drop. He cited the fact that earnings growth has dropped sharply in the past few months as companies deal with margin compression.
Therefore, he believes that key stock indices like the Dow Jones, Nasdaq 100, and the S&P 500 could slip by double-digits in the coming months. He said:
“We think this dynamic poses a near-term risk for stock prices given our more pessimistic outlook for earnings this year, especially as the liquidity picture becomes less accommodative.”
Mike Wilson’s statement was important because of his role in the financial industry. In 2022, he was voted as the number one Wall Street analyst, according to a survey by Institutional Investor. He accurately predicted the sell-off in equities as the Dow Jones and Nasdaq 100 dropped by more than 10%.
Earnings have dropped sharply in the past few months. Data by Factset shows that corporate earnings have dropped at the fastest pace since the Covid-019 pandemic. This week, some of the biggest players in corporate America like Microsoft, Alphabet, Amazon, and Meta Platforms will publish their financial results.
Read more: How to trade Bitcoin.
Impact on Bitcoin prices
The warning by Morgan Stanley could have an impact on Bitcoin and crypto prices. While cryptocurrencies don’t have earnings, there is usually a close correlation between stocks and digital coins.
For example, stock indices like the Dow Jones rose to their record highs when Bitcoin was also trading at its all-time high. Similarly, while Bitcoin’s crash was also deeper in 2022, it also coincided with a period when American indices dropped.
The next catalyst for Bitcoin, stocks, and other cryptocurrencies will be the upcoming economic data from the US. These numbers include consumer confidence, new home prices, GDP, and personal consumption index (PCE). They are important because they will impact the next Federal Reserve decision.
Analysts expect that the Fed will hike interest rates by 0.25% in May and then hold them unchanged for a while. Despite the earnings by Morgan Stanley, I suspect that Bitcoin prices will bounce back in the coming weeks and retest the key resistance at $35,000.
