Morgan Stanley’s chief US equity strategist isn’t convinced the stock rally is here to stay and strengthened his warning about a potential market downshift later this year.

“We would characterize this as the bear market is continuing,” Mike Wilson told Bloomberg Surveillance Friday. “This is what bear markets do: they’re designed to fool you, confuse you, make you do things you don’t want to do, chase things at the wrong time and probably sell them at the wrong time.”

The S&P 500 Index is up almost 10% year-to-date, hovering near its key 4,200 level. Optimism over a US debt-ceiling resolution and excitement over artificial intelligence prevailed this week after jitters over a stalemate and interest rate concerns kept stocks stagnant for much of May.

Wilson has remained one of Wall Street’s biggest bears after accurately predicting the 2022 selloff, even as US equity indexes continue to climb this year. In his view, earnings expectations and economic uncertainties leave little reason for optimism positive momentum can continue.

“The fundamental case does not support where stocks are trading today whether it’s at the index level or at the single-stock level, and the second half is going to be choppier and probably downward in the index,” Wilson said.

Naysayers have pointed to thin leadership propelling the market’s advance as a signal for weakness ahead. Absent a batch of some large-cap technology names, stocks have barely budged. The equal-weight version of the S&P 500, for example, remains roughly flat despite the gain on the main, cap-weighted gauge.

While Bank of America’s Savita Subramanian told Bloomberg Television this week that narrow breadth is not necessarily a “precursor for doom and gloom,” Wilson cites the lack of participation as a point of skepticism.

“We think where we are is the index is telling you things are rosy and fine and the breadth is telling you otherwise,” Wilson said on Bloomberg Television. “Growth is going to be a problem in the second half of this year, whether that’s an economic recession or not. We think it’s going to be an earnings recession that is way worse than what people are currently modeling.”

Earlier on Friday, Bank of America Corp. strategist Michael Hartnett said investors are fleeing stocks for money market funds and bonds and predicted another bout of risk-off trading in June. Global equities saw outflows of $3.9 billion in the week through May 24, a third straight week of redemptions that place year-to-date flows to the asset class flat for 2023, BofA said, citing EPFR Global data.

Some Wall Street voices, however, have softened their gloomy outlooks for US stocks. Citigroup Inc. global asset allocation strategists on Friday raised US stocks to neutral thanks to an expected boost from artificial intelligence, approaching peak rates, and economic resilience. Subramanian raised her S&P 500 year-end target to 4,300.

Meanwhile, Morgan Stanley Investment Management senior portfolio manager Andrew Slimmon struck a tone notably more optimistic tone than the bank’s house view as expressed by Wilson, saying in a phone interview that expectations for an earnings recovery in 2024 and the fear of missing out could drive the S&P 500 toward 4,600 by year end.

“With the exception of some very permanent bears who are digging in their heels, more and more people will begrudgingly raise their estimates,” Slimmon said.

--With assistance from Sagarika Jaisinghani, Jonathan Ferro and Tom Keene.

(Updates with comments on market breadth.)