Saturday, September 30, 2023

Stocks May Be Hit by the Worst Earnings Recession since 2008: Mike Wilson

  • According to Mike Wilson, Morgan Stanley’s Mike Wilson, stocks could be affected next year by the worst economic recession since 2008.
  • “We are looking for an earnings recession that could surprise the market as much as it was in 2008”
  • Wilson stated that earnings recessions are unlikely to be priced in the market yet, warning investors of further downsides.

According to Mike Wilson, chief equity strategist at Morgan Stanley, the worst earnings recession since 2008 could be a reality for stocks next year.

Interview with BloombergOn Friday, the top stock strategist noted that Morgan Stanley’s 2023 corporate earnings forecast was showing the widest deviation from the consensus forecast since summer 2008. The spread at the moment is 25%, he said later, which could indicate a good sign for investors looking forward to 2023.

Wilson stated that he was looking for an earnings recession which could be as surprising to the market in 2008 as it was then.

This is different from a balance-sheet recession, when stocks fall due high levels of debt. However, the market still faces significant price risks in the near future, he said.

Wilson had previously estimated that the S&P 500 would bottomIn the first half next year, it will plummet 20% as companies continue to revise their earnings lower. Since then, that prediction has been confirmed. echoed by other Wall Street analystsParticularly as it pertains to the Fed signals it will keep rates highIn 2023.

To control inflation, the Fed raised rates by 425 basis points in 2018. This has sparked fear and weighed heavily on stocks. Last week, central bankers predicted that they would keep raising rates to 5.1%. This prompted another stock market sell-off. 

Wilson said that the downward pressure will increase in the near term, as markets have not yet priced in an earnings decline. 

“There is a presumption that earnings will be worse next year. The market has already priced this in our conversations with clients. We are only warning people who think the market is omnipotent. He said that the market doesn’t usually know about these types of earnings drops before they happen.”

Already, the S&P 500 has fallen 25% this year. Wilson predicts that after hitting a low point in early-2023, the stock index will rebound and reach 3900 in the second quarter of 2023. Corporate earnings will then finally grow.

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