Morgan Stanley short interest: This week's heavyweight employment report may trigger a catch-up for US stocks' "latecomers," or it may replay a major sell-off

After accurately predicting the decline of the US stock market in July, Mike Wilson, the well-known bearish strategist and chief US stock strategist at Morgan Stanley, expects that if the recent heavyweight employment report further proves the resilience of the economy, it may prompt the "latecomers" of the recent stock market rebound to catch up, but it may also replay the major sell-off in early August.

Since the sell-off on "Black Monday" on August 5th, a series of strong economic data have been released, helping the US stock market recover. The S&P 500 index has since reversed the downward trend of August and continued to rise. Wilson's latest research report predicts that the US August non-farm payroll report to be released this Friday will strengthen this trend. If the report shows strong growth in non-farm employment population beyond market expectations, investors may "have more confidence that the risks of (economic) growth have diminished."

The report points out that if non-farm employment growth falls short of expectations and the August unemployment rate continues to rise, US stocks will "put pressure on stock valuations like last month." Wilson reiterated his preference for defensive stocks, while warning against buying small-cap stocks or "other low-priced cyclical stocks that have performed poorly in the past few years, mainly because economic growth is slowing down."

Wilson warned that one challenge facing US stock investors is that market pricing has already factored in expectations of a soft landing, limiting the upside potential of the S&P. Once data reignites concerns of a hard landing, it could trigger a "significant" decline.

Wilson believes that the most ideal scenario for US stocks is for the Federal Reserve to carry out a series of 25 basis point rate cuts while US economic growth remains stable. "If, with a weak labor market, (the Fed's) policy response becomes more dovish (such as a 50 basis point rate cut), it may not be favored by the stock market."

In a recent article on Monday by Wall Street News, Wilson pointed out that concerns about a "hard landing" for the US economy are a key reason for this recent decline. As US economic data continues to be released, the market is gradually beginning to price in an "economic soft landing," with multiple indices rebounding to historical highs. He warned that unless the Fed cuts rates more than expected, the economy strengthens, or additional policy stimulus is introduced, the returns of the indices in the next 6-12 months will be extremely limited, and investors should continue to choose quality stocks.

Wall Street News Monday Article mentioned that Wilson recently stated that concerns about a "hard landing" for the US economy are a key reason for this recent decline. As US economic data continues to be released, the market is gradually beginning to price in an "economic soft landing," with multiple indices rebounding to historical highs. He warned that unless the Fed cuts rates more than expected, the economy strengthens, or additional policy stimulus is introduced, the returns of the indices in the next 6-12 months will be extremely limited, and investors should continue to choose quality stocks