(Bloomberg) — US equities are set for his or her worst yr because the world monetary disaster, and, based on Morgan Stanley strategist Michael Wilson, company income are about to fulfill the identical destiny.
Most Read from Bloomberg
A looming earnings recession “by itself could be similar to what transpired in 2008/2009,” mentioned Wilson. That might spark a brand new stock-market low that’s “much worse than what most investors are expecting,” he wrote in a notice.
“Our advice — don’t assume the market is pricing this kind of outcome until it actually happens,” Wilson mentioned.
The strategist — a stalwart equities bear who referred to as this yr’s droop — mentioned that though inflation has began easing from historic highs, latest indicators of weakening within the US economic system have been worrying.
Morgan Stanley’s group is now leaning towards its bear case forecast for earnings of $180 per share in 2023 in contrast with analysts’ expectations of $231. That — mixed with the truth that the present fairness threat premium is decrease than in August 2008 regardless that valuations are greater — might see the S&P 500 sinking to as little as 3,000 factors subsequent yr, they mentioned, implying declines of twenty-two% from its Friday shut.
To make sure, Wilson doesn’t foresee a systemic monetary threat or indicators of misery within the housing market and, subsequently, doesn’t anticipate 50% draw back for shares, as in 2008.
A two-month rally in US shares has fizzled out — retaining the S&P 500 on observe for its greatest annual droop since 2008 — following staunchly hawkish indicators from the Federal Reserve and the European Central Bank. US shares final week failed to beat a technical downtrend in place because the begin of the yr, which has put an finish to the previous three bear-market rallies. Strategists at Goldman Sachs Group Inc. have additionally warned in regards to the threat to revenue margins subsequent yr as inflation stays excessive.
Story continues
Read More: Stock Market’s Brutal Year Saps Wall Street’s Faith in a Rebound
Among sectors, Wilson mentioned he’s chubby well being care, staples and utilities, and underweight discretionary and tech {hardware} shares.
–With help from Farah Elbahrawy and Michael Msika.
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.