Reuters / Brendan McDermid
- Stocks have yet to bottom and will see more downside later this year, Morgan Stanley said.
- In the best-case scenario, the bank predicted that the S&P 500 would fall to 3,400 by year-end, and in the event of a recession, it would fall to 3,000.
- But Morgan Stanley also expects the S&P 500 to recover next year, rising as high as 3,900 by June 2023, or to 3,350 in a bearish scenario.
Stocks haven't bottomed yet and could fall as much as 23% as investors shift their focus to slowing growth from Fed tightening, according to Morgan Stanley.
In the best-case scenario, the bank predicted that the S&P 500 would fall to 3,400 by year-end, and in the event of a recession, it would fall to 3,000. That represents downside of 13% and 23%, respectively, from current levels.
"While acknowledging the poor performance in equities year-to-date, we do not think the bear market is over if our earnings forecasts are correct," a team of analysts from Morgan Stanley said in a note on Tuesday.
Analysts revised their estimates for S&P 500 earnings per share down to $ 220 from $ 225 this year, and to $ 212 from $ 236 in the following year.
But Morgan Stanley also expects the S&P 500 to recover next year, rising as high as 3,900 by June 2023, or to 3,350 in a bearish scenario.
Meanwhile, the Federal Reserve is also expected to deliver another rate-hike of 50 to 75 basis points this month, which could eventually slow earnings further.
"Bottom line, we think the next several quarters will end up containing some of the most significant downward revisions to forward EPS forecasts we have seen in the past several cycles," analysts added.
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