Investors may be playing with fire.
According to Morgan Stanley's Mike Wilson, the S&P 500 is vulnerable to a 10% plunge despite Monday's late buying binge. He warns investors are dangerously downplaying a collision between a tightening Federal Reserve and slowing growth.
"This type of action is just not comforting. I don't think anybody is going home feeling like they've got this thing nailed even if they bought the lows," the firm's chief U.S. equity strategist and chief investment officer told CNBC's "Fast Money."
Wall Street hasn't seen an intraday reversal this large since the 2008 financial crisis. During Monday's session, the Nasdaq bounced back from a 4% drop while the Dow was off 3.25% at its low. At one point, the blue chip index was down 1,015 points. But by the close, the Nasdaq, Dow and S&P 500 were all in positive territory.
Wilson, the market's biggest bear, expects the painful drop will happen within the next three to four weeks. He anticipates challenging earnings reports and guidance will give investors a wake-up call regarding slowing growth.
"I need something below 4,000 to get really constructive," said Wilson. "I do think that'll happen."
His strategy: Double down on defensive trades ahead of the predicted setback. He warns virtually every S&P 500 group will see more trouble due to frothiness and is making decisions on a stock by stock basis.
"We're not making a big bet on cyclicals here like we were a year ago because growth is decelerating. People got a little too excited on these cyclical parts of the market, and we think that's wrong-footed," he said. "There's going to be a payback in demand this year. We do think margins are a potential issue."
Wilson doubts the Federal Reserve's two-day policy meeting which kicks of Tuesday will provide meaningful comfort to investors.
"They're not going to back off because the market sold off a bit here," Wilson said. "The data really hasn't been soft enough for them to stop the tightening process."
On Monday, the S&P 500 closed at 4410.13, 8.5% below the index's all-time high hit on Jan. 4. Wilson's year-end price-target is 4,400.
CNBC's Robert Hum contributed to this report.