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S&P Could Fall 24% This Year, Morgan Stanley Says, But One Sector May Be The Best Bet To Avoid The Slide – Forbes

Written by Amanda

Topline

The S&P 500 may soon sink to its lowest level in three years, Morgan Stanley strategists warned Monday, as concerns about how a bleak macroeconomic situation will weigh on bottom lines continue to haunt Wall Street.

Key Facts

Analysts led by Michael Wilson estimated the S&P could slip to as low as 3,000 points during 2023, according to a note to clients.

That indicates 24% downside from the index’s 3,930 mark as of Monday and would be the S&P’s lowest mark since May 2020. It’s an “easy sale” at the S&P’s current price with “inevitable earnings declines” one the way, Wilson wrote.

Morgan Stanley, which largely cited concerns about dimming corporate profit outlooks amid the high interest rates in nearly two decades and a global economy flirting with recession, is far more bearish than its peers.

Comerica Wealth Management’s head of investments John Lynch outlined a worst-case dip to about 3,500 for the S&P in a note last week, forecasted a worst-case fair valuation for the index of between 3,800 and 3,900 by the end of 2023; JPMorgan Chase technical analysts led by Jason Hunter forecast a base-case dive to about 3,500 for the index during the first three months of the year while Goldman Sachs strategists led by David Kostin outlined a worst-case low of 3,150 for the S&P.

Tangent

Bank of America’s quantitative model names financials as its favorite among the S&P’s 11 sectors for short-term growth thanks to the grouping’s comparatively strong bottom lines and resilience against macroeconomic headwinds, according to a Monday note to clients from analysts including Savita Subramanian. The energy sector, which was by far the strongest component of the index in 2022, closely follows financials in Bank of America’s model, while consumer discretionary and information technology stocks trade at the worst value, according to the technical analysis.

Key Background

Bearish warnings from major banks did not spook Wall Street, with the S&P, Dow Jones Industrial Average and tech-heavy Nasdaq each notching 0.4% or more gains Monday after having their best respective performances since November on Friday. 2022 was the worst year for each major index since 2008 as investors piled into safer assets with surging interest rates and numerous global economic challenges, including sticky inflation and instability related to the war in Ukraine.

Surprising Fact

The S&P is overvalued according to 17 of the 20 historical metrics tracked by Bank of America.

What To Watch For

Financials reporting quarterly results Friday including JPMorgan Chase and Bank of America will kick off this much-anticipated earnings season, with growth-focused companies like Tesla and Microsoft to follow later this month.

Further Reading

Stock Market Will Get Worse In 2023 Before It Gets Better, JPMorgan Says (Forbes)

Dow Posts Best Day Since November After Jobs Report Sparks Hope Of Fed Pivot (Forbes)

Fed Expects No Interest Rate Cuts In 2023: One Official Warns Of ‘Costly Error’ If Central Bank Backs Down Too Soon (Forbes)

Source: news.google.com

About the author

Amanda

Hi there, I am Amanda and I work as an editor at impactinvesting.ai;  if you are interested in my services, please reach me at amanda.impactinvesting.ai