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Morgan Stanley’s Mike Wilson backed his forecast of an earnings recession amid concerns from the banking sector.
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The equity strategist expects the S&P 500 to fall more than 20% before paring losses at the end of the year.
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JPMorgan, Citigroup and Wells Fargo will release their earnings on Friday.
Morgan Stanley is forecasting a recession for US stocks, with the S&P 500 falling more than 20% by the end of this year amid a looming earnings slump and fallout in the banking sector.
Mike Wilson, the Wall Street giant’s chief US equity strategist, reiterated his base case for the S&P 500 to end the year at 3,900, about 6% below current levels. The bear case for him is 3600 and the bull case for him is 4200.
But along the way, he still expects the indicator to hit a low of 3000-3300 for this cycle, representing a decline of more than 20%.
“That path to 3,900 still goes through the low 3,000 ultimately,” Wilson told Bloomberg TV on Thursday.
Despite the Federal Reserve’s aggressive tightening campaign, US stocks have remained fairly resilient. The S&P 500 is up 8% year to date, while the Nasdaq Composite is up 17% in the same time period.
However, the large number of bank failures in March and subsequent contagion fears do not bode well for corporate earnings.
“We’re in the earnings recession field. So whether we have an economic downturn or not is not as important as the earnings recession,” Wilson said. “The earnings situation is much worse than the consensus thinks… Banking stress only makes us even more confident in that.”
JPMorgan, Citigroup and Wells Fargo are kicking off earnings season on Friday. Goldman Sachs analysts expect US corporate profits to post their biggest drop since the start of the COVID-19 pandemic in 2020.
Read the original article on Business Insider