- Deflation could become a headwind for stocks, Morgan Stanley’s Mike Wilson warned.
- That’s because falling prices takes away firms’ pricing power, which hurts earnings.
- “[T]his is a slippery slope for earnings growth and hence stock valuations, which are now quite extended,” Wilson said.
Disinflation is about to turn into deflation – a major headwind for corporate earnings, and in turn stock prices, that investors have yet to take into account, according to Morgan Stanley’s chief stock strategist Mike Wilson.
In a podcast on Monday, Wilson pointed to easing consumer and producer prices, which have fueled investors’ hopes for a soft-landing of the US economy. In June, consumer prices accelerated 3% year-over-year, down significantly from 9.1% last summer. Meanwhile, producer prices accelerated just 0.1% year-per-year, down from 0.9% in June 2022.
Markets have interpreted that as positive news for stocks, as cooler