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Morgan Stanley’s Wilson Sees Rough Ride for US Stocks in 2023


(Bloomberg) – US stocks will end 2023 virtually unchanged from current levels – but there will be a bumpy road to getting there, according to Morgan Stanley’s Michael Wilson.

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The top-rated strategist sees a “volatility path” to the S&P 500’s underlying target by the end of 2023 of 3,900 index points, about 2% below Friday’s close. He predicts the stock will fall as earnings estimates drop, before rebounding in the second half of the year.

“The road ahead is much more uncertain than it was a year ago, and is likely to bring more twists and days/weeks for investors who regret they traded the other way,” Wilson wrote in a note. note Monday. In the short term, he sees the stock market rally fueled by last week’s good inflation data running for a few more weeks.

The portfolio strategist – who correctly predicted this year’s drop and was ranked #1 in the latest Institutional Investor survey – said the consensus earnings estimate for 2023 is still still too high. His base case is that US corporate profits drop 11% in 2023, before recovering strongly in 2024 when leverage is active again.

His comments provide another warning for US companies that are ending their worst earnings season since the first quarter of 2020, marked by the impact of high inflation, a stronger dollar and a impressive number of profit alerts.

Five biggest takeaways from this results season: Track earnings

Wilson expects the S&P 500 to bottom out between 3,000 and 3,300 points — at least 17 percent below current levels — in the first quarter. He recommends that investors take a defensive position from a sector and style standpoint “until estimates reflect bankruptcy.” After upgrading the staples, strategists are thinking more about that area as well as defense-oriented healthcare, utilities, and power-storage.

JPMorgan Chase & Co. strategist Mislav Matejka. is more positive. According to a report Monday, he sees continued support for the stock market from peaks in bond yields, cooling inflation, mild positioning and the possibility of smaller-than-usual earnings, according to a report on Monday.

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