Via a Morgan Stanley note on US stocks. In a nutshell, analysts at MS are warning that US corporate profits could be set for their largest fall since the global financial crisis. MS say that while the focus appears to be on inflation and the Fed, the current decline in stocks is being prompted by investors turning their attention to the deteriorating earnings outlook.
MS add further that severity of the coming wave of earnings downgrades is still underappreciated.
Morgan Stanley’s chief US equity strategist, Michael Wilson:
- The fixation on inflation and the Fed continues, but markets appear to have moved past it and onto the real concern – earnings growth/recession
- Rates and inflation may have peaked, but we see that as a warning sign for profitability
- The earnings recession by itself could be similar to what transpired in 2008-09
- Our advice — don’t assume the market is pricing this kind of outcome until it actually happens
Morgan Stanley 2023 forecast for earnings (base case) is $US195 per share for the S&P 500
- vs. consensus of $US231
MS' bear case for earnings per share is much lower again, at S180. MS says that if that's correct then:
- the price declines for equities will be much worse than what most investors are expecting
MS' forecast is drop into the 3000 to 3300-point range, favouring the low end of that range given its earnings outlook.
