Morgan Stanley’s Wilson says stock market risks have rarely been higher

(Bloomberg) – One of Wall Street’s most bearish strategists says US stocks are facing a wall of worry, which could fuel a strong sell-off in the near future.

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Morgan Stanley’s Michael Wilson, whose outlook for a market crash in 2023 has yet to materialize, sees the S&P 500 threatened with a near-term decline. He expects the benchmark to end this year at 3,900 – about 10% below Friday’s close – before climbing to 4,200 in the second quarter of next year.

“Headwinds far outweigh tailwinds and we believe the risks of a major correction have rarely been higher,” Wilson said in a client note on Monday.

Morgan Stanley is sticking to an earnings outlook below market consensus, expecting S&P 500 EPS to be $185 this year, versus an average estimate of $220. Wilson said deteriorating prices and disappointing sales would lead to lost profits.

In addition to profit risks, Wilson also reiterated the headwinds of deteriorating liquidity due to record levels of Treasury issuance and fading fiscal support. He expects value stocks to outperform growth as investors turn to defensive sectors.

After hitting its highest level since April 2022 earlier this month, the S&P 500 retreated on fears the hawkish Federal Reserve could drive the economy into contraction as it battles stubbornly high inflation.

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