By Senad Karaahmetovic
Michael Wilson, Morgan Stanley’s top U.S. equity strategist, has once again urged the bank’s clients to remain defensively positioned given mounting headwinds for earnings.
In addition to inflation, geopolitical conflicts, recession fears, and aggressive central bank tightening, Wilson also sees a “very strong” U.S. dollar as “yet another headwind for earnings".
“US companies in aggregate generate ~30% of sales abroad. The rate of change on the dollar exhibits a strong negative correlation over time vs. S&P 500 earnings revisions. USD strength comes at an inopportune time for corporates already facing margin pressure and increasingly weaker demand. 2Q earnings season should be a negative catalyst for equities in the coming weeks,” Wilson warned clients in a research note sent today.
The strategist also warns that the current bear market “may have more room to run”, if history is to be trusted.
Morgan Stanley strategist sees the S&P 500 heading lower towards 3400-3500 in a soft-landing scenario and ~3000 in the recession outcome.
“Whether we go into a recession or not, we will think the equity market is mispriced for the current PMI, interest rate and earnings revisions backdrop. We continue to think fair value is 3400-3500, and maintain that view as our tactical base case,” Wilson concluded.