S&P 500 Will See 3000-3400 Later This Year, Morgan Stanley's Wilson Warns Again

September 26, 2022 6:37 AM EDT
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With the Fed removing “any remaining doubts about its commitment” to strongly tackle extremely high inflation, Morgan Stanley’s top equity strategist Michael Wilson is increasingly confident in his prediction that U.S. stocks are yet to hit the real bottom.

The strategist sees both stocks and bonds taking “another leg lower” in response to the growth trajectory in earnings and the economy, as well as the strong dollar.

“While hard to predict such "events," the conditions are in place for one, which would help accelerate the end to this bear market,” Wilson told clients in a note.

Wilson also sees an “untenable situation for risk assets” for risk assets given the soaring U.S. dollar, which could prompt “a financial or economic crisis, or both.” Morgan Stanley strategists have a $118 price target on the dollar index (DXY), which suggests more upside.

“On a year over year basis, the DXY is now up 21% and still rising. Based on our analysis that every 1% change in the DXY has around a -0.5% impact on S&P 500 earnings, 4Q S&P 500 earnings will face an approximate 10% headwind to growth all else equal,” the strategist added.

Morgan Stanley’s top strategist also sees accelerating negative earnings revision in the next 1-2 months, a development that should facilitate the next log lower in stocks.

“We remain highly convicted in our view that the bear market in stocks will not be over until the S&P 500 reaches the range of our Base and Bear case tactical targets – i.e.,3000-3400, later this fall,” Wilson concluded.

By Senad Karaahmetovic

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