Prominent Morgan Stanley bear ups his forecast for the S&P 500

Prominent Morgan Stanley bear ups his forecast for the S&P 500

After last week’s stock market rally, when multiple indexes hit all-time highs, some are waiting for the selloff shoe to drop.

But one Wall Street bear is forecasting better weather for the US markets than he previously projected. Morgan Stanley’s Mike Wilson upped his base case 12-month target for the S&P 500 to 5,400 this weekend—a significant jump from his previous expectation of 4,500.

The positive forecast for the index is a departure from Wilson’s previous position that the S&P 500 was due for another drop.

The more rosy forward-looking picture is due to expectations of more positive earnings results from S&P 500 companies, in addition to greater efficiency from companies implementing AI.

“Our 2024 and 2025 earnings growth forecasts (8% and 13%, respectively) assume healthy, mid single-digit top-line growth in addition to margin expansion in both years as positive operating leverage resumes,” Morgan Stanley analysts wrote in their mid-year outlook report for US equities.

Yet the analysts emphasized that their dominant impression of the market’s future is still uncertainty. “Tighter forecasts combined with a wider range of outcomes is a recipe for more volatile prices, in our view,” they wrote.

Morgan Stanley urged investors to prepare for a range of market conditions, due to Fed- and inflation-related economic uncertainties. They pointed to overweighting the industrials sector, arguing the sector has room to grow due to positive earnings and current undervaluations. They also noted that the firm maintains long exposure in consumer staples and utilities, and wrote that large caps will likely continue to beat their small cap competitors. Finally, they gave an underweight rating to broad consumer cyclicals, and a neutral weighting on financials, real estate, and tech.

The bank’s weekend note comes as other Wall Street analysts shift their price targets to be more bullish. A Deutsche Bank team upgraded their S&P 500 price target to 5,500 on Friday, one of the highest targets on the Street.

While nobody holds a crystal ball, consensus has clearly shifted toward optimism about a soft landing, which would have been hard to believe a year ago when we were in the depths of a bear market. Yet Wilson has been wrong before—in 2023, he and other analysts predicted the S&P 500 was about to take a fall, when in fact the index ended up surging.—LB

Source Reference

Latest stories