S&P 500 to Backside Subsequent Yr, Morgan Stanley Says

• Morgan Stanley’s Mike Wilson expects the benchmark S&P 500 will backside out subsequent yr. 
• That presents inventory traders with a “terrific shopping for alternative,” the funding chief advised CNBC.
• US shares have been turbulent this yr because the Fed hikes rates of interest to combat inflation. 

The S&P 500 will hit a brand new a low early subsequent yr, presenting US inventory traders with an opportunity to leap in and profit, in response to Morgan Stanley’s high inventory picker.

“You are going to make a brand new low a while within the first quarter, and that will probably be a terrific shopping for alternative,” the financial institution’s CIO Mike Wilson mentioned in a Sunday interview with CNBC.

“As a result of by the point we get to the top of subsequent yr, we’ll be taking a look at 2024, when the earnings will truly be accelerating once more,” he added.

Wilson made an S&P 500 worth name of three,900 for the top of 2023, including that US shares have a risky path forward as they strategy the top of the present bear market. 

“I feel we’re within the closing phases. However the closing phases could be very difficult, proper?” he mentioned.

Inflation, larger rates of interest, and the specter of a US recession has suppressed investor urge for food for shares this yr, and the benchmark inventory index is down practically 17% year-to-date. It closed out Friday with a 0.48% gain, however a loss for the week. 

The S&P 500  slipped into bear market territory in June, because the Federal Reserve slammed the brakes on the US financial system with aggressive rate of interest hikes. It is making an attempt to stop 40-year excessive inflation, triggered partly as a result of Russia’s battle with Ukraine, from turning into entrenched. 

The Fed in 2022 has lifted the fed funds charge from 0% to a variety of three.75%-4%, together with 4 consecutive, hefty hikes of 0.75 proportion factors. Inflation eased considerably in October, however the month-to-month headline charge of seven.7% exceeds the Fed’s 2% goal. 

“Now it is a extra of a two-way danger. And I feel we will be in that two-way danger most likely till the yr finish,” Wilson added, mentioned the primary 7-8 months of the yr was a “straight down transfer.” 

“The ultimate transfer of the bear market most likely comes subsequent yr within the first quarter, when the earnings lastly catch as much as the place we expect they are going to be subsequent yr,” he mentioned.

Wilson mentioned earnings expectations for subsequent yr are 20% too excessive, however advised that volatility, relatively than a success to inventory costs, is in focus for Morgan Stanley.

“As bearish as we’re subsequent yr on earnings, the worth injury most likely is not that unhealthy over the subsequent 12 months, it is the trail that is going to be actually tough,” he mentioned.