Morgan Stanley Sees S&P; 500 Plunging to 'Minimum' 3400 in Q4

© Reuters. Morgan Stanley Sees S&P 500 Plunging to 'Minimum' 3400 in Q4

By Senad Karaahmetovic

Morgan Stanley’s top U.S. equity strategist Michael Wilson has made further cuts to the firm’s earnings estimates as he believes the market is yet to hit the bottom in this cycle.

The strategist notes that Morgan Stanley’s “leading models point to continued and increasingly significant EPS growth downside well into 2023.” Along these lines, the 2022 EPS forecast is cut to $220 from $225 and 2023 to $212 from $236. The strategist also made cuts to 2024 EPS estimates.

“Our '22/'23/'24 base case estimates are now 3%/13%/14% below consensus, respectively. In our base case, 2023 now marks a modest earnings contraction (-3% year-over-year growth), though we do not embed an economic recession in this scenario. The logic here is that nominal top line growth slows, but remains positive (mid-single-digit territory), while margins contract materially (1-1.5% margin compression) driven by sticky cost pressures, particularly on the labor side,” Wilson explained in a client note.