“Equity markets survived a crucial test of support last week that suggests this bear market rally is not ready to end just yet,” the strategist wrote in a note Monday. Wilson correctly predicted the selloff in stocks and the rebound in October. 

He noted that the S&P 500 stayed above its 200-day moving average, and could see further upside if the dollar and interest rates continue to recede after last Friday’s drop. 

While Wilson sees the next resistance for the S&P 500 at 4,150 points — about 2.5% higher than Friday’s close — he views it as a short-term pivot. Markets have further to fall in the medium term, as fundamentals continue to deteriorate, especially on the earnings front, he wrote.  

Despite the rally, “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,” Wilson said, expecting margins to disappoint the current consensus “by a large amount.”

Wilson noted the gap between reported earnings and cash flow is the widest in 25 years, driven by excess inventory and capitalized costs that have yet to be reflected. 

The S&P 500 has risen 5.4% this year, while the technology benchmark Nasdaq 100 surged over 12%, despite hawkish comments from Federal Reserve officials given a resilient economy and still hot inflation and jobs data. The US 10-year Treasury yield surged to nearly 4.2% last week before receding on Friday, spurring stocks higher.

Wilson’s caution is echoed at JPMorgan Chase & Co., where strategists led by Mislav Matejka see investors now “more comfortable chasing the market,” recommending to use the current strength to trim exposure, as monetary policy tightening will impact stocks with a lag. 

Matejka is also particularly negative on US equities, pointing out that relative valuations and earnings are near historic highs, while they could “keep unwinding some of the strong run that it delivered over the past 10 years,” according to a note on Monday.