A bear market rally could lead to a correction, according to Mike Wilson of Morgan Stanley.

A major Wall Street firm is on correction watch.

Although the recent market surge, Mike Wilson of Morgan Stanley anticipates a minimum decline of 13% from the present until September.

On Monday, Wilson mentioned technical difficulties on CNBC's "Fast Money."

The firm's chief U.S. equity strategist and chief investment officer stated that the market rally exhibits all the characteristics of a bear market rally because things became oversold.

The tech-heavy stock rallied almost 2% on Monday and has increased more than 13% over the past three weeks.

Wilson stated that the Nasdaq has encountered resistance once again, causing it to retrace back to the 200-day moving average. He advised staying defensive, as they are currently in a late cycle.

According to Wilson, the inflation surge and Federal Reserve's tightening policy could increase recession risks, resulting in an environment where stocks perform worse than expected.

Wilson stated that there is a possibility of a recession next year, but they do not believe one will occur this year. As a result, the markets will trade defensively.

The S&P 500 will end the year at 4,400, according to Wilson, the market's largest bear, which represents a 9% decline from its all-time high on January 4.

‘We’re doubling down on defensives’

In his Monday research note, Wilson stated that he is increasing his focus on defensive investments as growth is now the main concern for equity investors, rather than higher interest rates.

Wilson’s market playbook includes , and to outperform.

During the winter season on "Fast Money," he highlighted the benefits of defensive stock picks that experienced a decline below 4,000.

On Jan. 24, Wilson stated, "I need something below 4,000 to get really constructive." He added, "I do think that'll happen."

If the Fed does not raise rates as quickly or aggressively, he may be open to softening his bearish stance.

Given the inflation, it's unlikely that the option is feasible, but it would be a potent solution to enable the markets to continue climbing, according to Wilson.

The first quarter earnings season starts in a week from Wednesday, and he mentions better-than-expected earnings as a potential upside wildcard.

Wilson stated that if they are incorrect, it will be due to earnings, not because financial conditions ease up again. Instead, it will be because earnings do not disappoint as expected throughout the year.