John W Banagan / Investing
- Morgan Stanley's Mike Wilson backed his forecast for an earnings recession amid banking sector concerns.
- The equity strategist sees the S&P 500 falling more than 20% before parring losses by year-end.
- JPMorgan, Citigroup, and Wells Fargo are kicking off earnings on Friday.
Morgan Stanley forecasts a downturn coming for US stocks, with the S&P 500 dropping over 20% later this year amid a looming earnings recession and fallout in the banking sector.
Mike Wilson, the Wall Street giant's US chief equity strategist, reiterated his base-case scenario for the S&P 500 to end the year at 3,900, about 6% below current levels. His bear case is 3,600, and his bull case is 4,200.
But along the way, he still expects the gauge to hit a trough of 3,000-3,300 for this cycle, representing a decline of more than 20%.
"That path to 3,900 still goes through the low 3,000s ultimately," Wilson told Bloomberg TV on Thursday.
Despite the Federal Reserve's aggressive monetary tightening campaign, US stocks have remained fairly resilient. The S&P 500 is up 8% year-to-date, while the Nasdaq Composite has surged 17% in the same time frame.
The slew of bank failures in March and subsequent contagion fears, however, don't bode well for corporate earnings.
"We're in the earnings recession camp. So whether we have an economic recession or not it isn't as important as the earnings recession," Wilson said. "The earnings situation is way worse than what the consensus thinks... The banking stress only makes us even more confident of that."
JPMorgan, Citigroup, and Wells Fargo are kicking off earnings season on Friday. Analysts at Goldman Sachs expect US corporate profits to post their biggest decline since the beginning of the COVID-19 pandemic in 2020.