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(CNN Business) —  

Morgan Stanley thinks the bull market is already over – investors just don’t realize it yet.

“We are in a bear market,” Morgan Stanley equity strategist Michael Wilson declared in a report to clients on Monday.

Even though the American economy is strong, Wilson argued that the market is sniffing out a sharp deceleration in economic growth and a decline in corporate profits.

“While 2018 is clearly not a year of recession, the market is speaking loudly that bad news is coming,” according to Wilson, who has been skeptical about the market for months.

40% of S&P 500 is already in a bear market

The ominous call comes as Wall Street grapples with another steep selloff. The Dow dropped nearly 400 points on Monday. The Nasdaq plunged 3%. Former tech darlings Amazon (AMZN), Facebook (FB) and Netflix (NFLX) tumbled. And Apple (AAPL) slumped on deepening fears about disappointing demand for the latest iPhones.

Despite the recent turbulence, the longest bull market in American history is still intact. The S&P 500 is trading about 9% below the record high it notched in late September. It would have to decline 20% from that all-time high to officially qualify for bear market status.

But under the hood, the bull market looks under siege. Morgan Stanley noted that more than 40% of the S&P 500 stocks are down at least 20%.

One of the big fears is that the Federal Reserve is raising interest rates more rapidly than the economy can handle. Credit-sensitive parts of the economy, especially autos and housing, have already begun to slow. Wilson wrote that the Fed isn’t likely to “bail out” investors by backing down from rate hikes.

Tellingly, the stock market is no longer reflexively bouncing back from declines. In 2018, the S&P 500 has averaged a slight decline on days when the prior weekly return was negative, according to Morgan Stanley. That hasn’t happened since 2002.

“The only years the Buy the Dip hasn’t worked was during bear markets, or the beginning of one,” Wilson wrote.

Investors have dumped individual stocks too, even after companies reported better-than-expected results. That’s not a healthy sign.

“In our view, when stocks sell off on good news, that’s a bear market,” Wilson wrote.

Goldman Sachs: Buy stocks

Of course, many on Wall Street believe this is just a mild a correction as the markets adjust to a slower growth environment. The US economy continues to enjoy a stronger performance than much of the rest of the world. And corporate profits are projected to grow solidly next year, even if it’s at a slower pace.

Goldman Sachs is continuing to urge clients to buy US stocks even though the Wall Street firm believes domestic GDP growth will slow to 2.5% in 2019 and 1.6% in 2020.

David Kostin, the Goldman Sachs chief US equity strategist, wrote in a report published late Friday that the S&P 500 will probably end this year at 2850. That’s nearly 6% above today’s level.

Neuberger Berman reminded clients on Monday that market corrections have “rarely” gone on to become all-out bear markets absent a recession within 12 months.

“Volatility is not the same as a sustained bear market,” wrote Erik Knutzen, the firm’s multi-asset chief investment officer.

Not a repeat of 2008

The good news is that not even the bears are calling for a repeat of the 2008-2009 meltdown that wiped out more than half the S&P 500’s value.

In fact, Wilson previously argued this would be a short-term market downturn, known as a “cyclical” bear market. He said it would occur within a “secular” bull market, or one that lasts for a long period of time.

On Monday, Wilson said there’s likely “limited” risk to the downside for the S&P 500 because valuations have already come down meaningfully. And it also helps that hedge funds and other active investors have reined in risk significantly.

Still, Wilson urged clients not to get trapped by fleeting market rebounds.

“This is a bear market” he wrote, “and should be traded as such – i.e. sell rallies rather than buy dips.”