(Bloomberg) -- The disappointments around Corporate America profits could “accelerate,” with the recent rally in equities potentially becoming a head-fake, according to Morgan Stanley’s Mike Wilson.

“Earnings are disappointing everywhere, OK? This is one of the worst streaks in earnings we’ve seen in quite a while,” Wilson said in an interview with Bloomberg Television Wednesday. “People are now saying, ‘Oh, it’s better than feared,’ and this, that and the other. That’s like saying a tornado ripped through your house and saying, ‘Oh well, it only knocked out the bedroom.’ The earnings are bad.” 

The S&P 500 advanced more than 6% in January. Tech stocks also gained, with the Nasdaq 100 adding near 11%, its best monthly showing since July. Yet margins are degrading and many investors are just trusting that things will get better, which is not a great investment philosophy, said the bank’s equity strategist.

Earnings for S&P 500 companies are projected to be flat at $223.1 a share in 2023, according to analyst estimates compiled by Bloomberg Intelligence. That’s down from a forecast of growth of 4.4% at the end of October.

January’s rally lured people into believing that “reality is different than what it is,” Wilson said. It’s typical for a January start, especially coming off a difficult year. He likened last month’s uptick in stocks to the start of 2001, when the market also saw a re-rating in tech stocks. 

“Then you get into the new year and people think, ‘Oh, the worst is over,’ and then they come back and buy all of the stocks that got hammered at the year-end,” he said. “And then you get this big rally in the biggest laggards.” 

Meanwhile, Wilson says he doesn’t expect anything surprising out of the Federal Reserve on Wednesday, which is widely expected to raise interest rates by 25 basis points, slowing its pace of hikes for a second consecutive session — though January’s advance in the stock market shows that investors are at odds with the Fed, as Chair Jerome Powell and his colleagues have attempted time and again to reinforce that rates will remain higher for a while. 

“Reminder that they’re not cutting rates anytime soon, and they’re still doing QT,” Wilson said. 

--With assistance from Lu Wang.

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