The speculative rally in tech and meme stocks is out of control again and some could plummet 20%, Morgan Stanley's chief equities strategist says

• Big tech and meme stocks are surging in a speculative rally, Morgan Stanley's Mike Wilson said.
• Wilson urged investors to get out of those risky areas of the market, as some names could lose 20% of their value.

Technology and meme stocks are once again in the grip of a speculative rally, and some names look poised to lose as much as 20% of their value in a correction, according to Morgan Stanley's chief stock strategist Mike Wilson.

"I do think people are going to get carried away with what they've been buying," Wilson said in an interview with Bloomberg on Tuesday, adding that while the stock rally in the fall of 2022 was based on fundamentals, the 2023 rally has been fueled by more speculation, which could be dangerous for investors jumping in on big tech names or well-known meme stocks that flourished during the pandemic.

"Those have just gotten out of control again, particularly within the context of higher rates," Wilson said. "There's a lot of stuff that's gotten dragged along here that's wildly speculative now, in my viewing. It's actually somewhat reckless. And that's the stuff you gotta be careful of if it's in your portfolio. You gotta get out of there," he warned.

He added that there are "plenty" of names that could go bankrupt, and overvalued stocks could plunge 20% "no problem" as the speculative rally loses steam and the market corrects

The rally that kicked off 2023 has already begun to falter in recent weeks as investors brace for more rate hikes from the Federal Reserve. Fed Chair Jerome Powell on Tuesday kicked off a two-day testimony to lawmakers in Washington, DC, that struck a hawkish tone. Fed fund futures showed traders pricing in higher odds of a bigger rate hike at this month's policy meeting.

While Wilson said the bear market rally still had room to run, he's been bearish on stocks for months and has called this year's rebound a "bull trap" for investors. Previously, he said stocks were in the "death zone" as inflation will remain sticky and rates will tread higher, which could cause stocks to plunge 26% in the coming months.