The bear market will finish early subsequent 12 months and create a ‘terrific shopping for alternative,’ Morgan Stanley’s Mike Wilson says

And now, regardless of constant recession predictions from economists, Wall Road’s prime strategist says shares are in “the ultimate phases” of the bear market.

“You’re going to make a brand new low someday within the first quarter, and that might be a terrific shopping for alternative,” Wilson informed CNBC in a Sunday interview.

However earlier than anybody rushes out to purchase shares, Wilson additionally warns that the previous few months of the bear market might be turbulent, to say the least.

“It’s the trail that’s going to be actually tough,” he mentioned.

Regardless of a greater than 5% rally within the S&P 500 over the previous 30 days, the blue-chip index remains to be down greater than 17% 12 months up to now. And Wilson argues that company earnings estimates for 2023 are nonetheless 20% too excessive, given the endurance of inflation and the fast enhance in rates of interest up to now this 12 months.

That might imply extra draw back lays forward for equities earlier than the bear market is over.

In a Monday notice to shoppers, Wilson wrote that he sees three key “inflection factors” coming within the inventory market over the subsequent 12 months.

The primary is the continuing bear market rally, which ought to final two months and take the S&P 500 roughly 5% increased, to 4150.

Then, Wilson expects earnings estimates to fall as “hearth” and “ice”—Federal Reserve rate of interest hikes and slowing financial development—work collectively to slash company earnings resulting in extra conservative forecasts from administration groups. 

Falling earnings estimates will then trigger the S&P 500 to plummet to between 3,000 and three,300 within the first quarter of subsequent 12 months, he says.

Billionaire investor Carl Icahn made an analogous prediction earlier this month, arguing that the latest rebound in shares is nothing greater than a bear market entice for buyers.

“I nonetheless suppose we’re in a bear market,” Icahn informed CNBC. “I don’t suppose inflation goes away…not for the close to time period. I believe you’re going to have extra of a recession, extra of an earnings lower.”

However not like Icahn, Wilson doesn’t foresee shares persevering with to battle subsequent 12 months as a result of a extreme recession. 

As a substitute, the CIO expects “a rebound” off of the primary quarter low as buyers start to anticipate a comeback in financial development and the top of the bear market.

It’s a super shopping for alternative, in response to Wilson—and the Morgan Stanley CIO isn’t the one massive title on Wall Road who believes sturdy returns are attainable in 2023.

Wharton Professor Jeremy Siegel mentioned on Monday that he believes shares may rally as a lot as 20% subsequent 12 months as inflation falls again towards the Fed’s 2% goal. And Fundstrat’s Tom Lee mentioned final week that the S&P 500 may rally 25% after the most recent inflation print got here in decrease than anticipated.

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