Prominent market bear Mike Wilson, the chief U.S. equity strategist for Morgan Stanley who accurately predicted this year′s stock sell-off, said the market has “run out of steam” and he expects the S&P 500 index to fall to the 3,000-3,300 level by the first quarter of 2023.
At the current level of 3,852, the S&P would have to fall up to 22 percent to make Wilson’s prediction true. He was once the only strategist on Wall Street bearish enough to predict the S&P 500 would fall to 3,900 by the end of the year.
When Wilson predicted at the beginning of 2022 that there would be a sell-off, his year-end target for the S&P 500 of 3,900 was lower than the average forecast of 4,023, according to a CNBC market strategist survey.
In a Dec. 12 note, Wilson acknowledged that his is not the consensus prediction, and the bank’s bearish views “differ from many we speak with.”
Wilson said he believes the decline in the market this year was mainly driven by valuation compression as interest rates rose. He predicts the market’s next fall will be about a decline in earnings.
He is warning investors that he expects U.S. companies to revise earnings downward in the first quarter of 2023, which will send stocks down another 20 percent-plus early in the year,
The market’s “unwillingness to price the earnings risk” has seen the index rally instead, he said. As of Wilson’s Dec. 13 note, the market was up by 11.5 percent from mid-October.
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“The bear market is not over,” Wilson said on CNBC’s Fast Money in November. “We’ve got significantly lower lows if our earnings forecast is correct.”
Wilson ranked as the No. 1 stock strategist in a recent Institutional Investor survey. He predicts the stock market will dip hard in early 2023 before rebounding back to around 3,900 by the end of the year.
Image: Morgan Stanley strategist Mike Wilson, Nov. 29, 2022 on CNBC TV, screenshot from video,