US stocks face massive drop – Morgan Stanley

US stocks are expected to undergo much sharper declines than most of the pessimistic projections outlined, according to Michael Wilson, Morgan Stanley’s chief US equity strategist, as quoted by Bloomberg.

In a research note seen by the agency, the analyst said that the recession would exacerbate the biggest annual decline in the equity market since the global financial crisis. Wilson added that the S&P 500 could drop much lower than the 3,500 to 3,600 points that the market is currently estimating, in the event of a mild recession.

“The consensus could be right directionally, but wrong in terms of magnitude,” he said, adding that the benchmark could bottom around 3,000 points, or some 22% as against current levels.

The analyst warned, however, that while a peak in inflation would bolster bond markets, “it’s also very negative for profitability.” Margins will continue to disappoint through 2023, he added.

Meanwhile, analysts at Goldman Sachs reportedly expect the positive impact from China’s post-Covid economic reopening to get overshadowed by pressure on profit margins, changes to US corporate tax policies, along with looming recession.

Deutsche Bank Group strategists also say that US earnings would decline during the current year, adding that stocks could rally through the fourth-quarter reporting season due to a year-end selloff and to low investor positioning.

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