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Portfolio > Economy & Markets

S&P 500 Should End Year at 3,900: Morgan Stanley's Wilson

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Morgan Stanley’s Mike Wilson is reinforcing his status as Wall Street’s most-famous bear.

The bank’s top U.S. equity strategist reiterated his year-end target of 3,900 on the S&P 500 Index Wednesday, warning in an interview with Bloomberg Surveillance that a profit recession is still underway. That level implies a nearly 11% drop from where the US stock gauge is currently trading.

“Inflation is going to come down. It’s not going to be good for stocks because that is where the earnings power has been coming from,” said Wilson.

His view comes as the Federal Reserve is expected to pause its most aggressive interest rate-hiking blitz in decades and an artificial intelligence-powered boom helped drive the S&P 500 into a technical bull market.

Earlier this week, Wilson and his team of strategists said in a note that they expect S&P earnings to drop 16%, compared to predictions for a decline of just 2.4% for 2023 from sell-side analysts who have boosted their earnings expectations.

Wilson’s team anticipates 2024 earnings-per-share growth of 23%.

The technology stocks that lead the recent market rally “had the biggest earnings recession,” Wilson said.

“The presumption is that it’s over,” but “it’s going to persist into the second half of the year,” he added. “It’s going to get worse before it improves next year.”

Morgan Stanley’s stock chief has maintained his bearish stance, even as a growing wave of peers at rival banks have ditched their gloomy outlooks.

Goldman Sachs Group Inc.’s David Kostin sees further momentum in the stock market as other sectors catch up with the red-hot rally in tech shares.

Kostin raised his year-end forecast for the S&P 500 to 4,500. And Bank of America Corp.’s Savita Subramanian called an official end to the bear market last week after also lifting her 2023 target.

“The rally clearing the 20% threshold has emboldened more pundits and market participants to declare the official end to the bear market,” Wilson wrote in a Monday note. “We respectfully disagree due to our ‘23 fundamental view, which is now very much out of consensus.”

Wilson was ranked No. 1 in last year’s Institutional Investor survey after correctly predicting the selloff in stocks across 2022. In October, he accurately predicted a short-term rally in US equities but his outlook for a stock slump in 2023 has yet to materialize.

The S&P 500 is up roughly 14% this year (hitting  4,372.50 at 4 p.m. Wednesday in New York), and the Nasdaq 100 has surged 37% (trading at 13,626.48).

To be sure, the strategist remains invested in the US stock market. Wilson is overweight cash and underweight stocks.

The market suffers from “a very broad overvaluation,” he said, but energy and financials are among sectors that can be bought cheaply.

“The question is, ‘What are earnings going to do?’” Wilson said.

(Image: Adobe Stock)

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