Tech And Meme Stocks Could Plummet 20%, Morgan Stanley Says

According to Morgan Stanley's senior stock strategist Mike Wilson, technology and meme stocks are once more engulfed in a speculative boom, and several names appear set to lose as much as 20% of its value in a downturn.

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In an interview with Trade Algo, Wilson stated, "I do believe that individuals are likely to get carried away with what they've been buying." Wilson added that while the stock demonstration in the fall of 2022 was based on fundamentals, the rally in 2023 has been fueled by more supposition, which could be risky for investors putting money into well-known tech names or well-known meme stocks that thrived during the pandemic.

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"They have just gone out of control again, especially in the setting of increased rates," Wilson said. "There's a great deal of stuff that's gotten pulled along here that, in my perspective, is extremely speculative today, and it's actually rather risky. And that's the stuff you gotta be aware of if it's in your portfolios. You gotta get out of there," he said.

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Once the speculative rise loses pace and the market corrects, there are "plenty" of companies that may go out of business, and expensive equities could drop 20% "no problem."

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As investors are ready for further Federal Reserve rate hikes, the rally that started 2023 has already started to stall. Fed Chair Jerome Powell began his two-day congressional hearing on Tuesday, striking a hawkish tone. Traders have increased their odds of a larger rate hike at this season's policy meeting, according to Fed fund futures.

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Wilson dubbed this year's bounce a "bull trap" for investors even though he said the bear market recovery still had room to run. Wilson has been pessimistic on stocks for months. Prior to this, he said that equities were in the "death zone" due to rising rates and sticky inflation, which might produce a 26% decline in stocks in the near future.