Morgan Stanley strategist forecasts S&P to fall to 3,000 next year

Wilson, who also serves as Morgan Stanley’s chief U.S. equity strategist, warns investors that U.S. companies will trigger a plethora of downward earnings revisions in the first quarter of next year that will send shares down another 24% in early 2023 .

“You should expect the S&P to be between 3,000 and 3,300 sometime in the first four months of the year,” Wilson said CNBC’s Quick money at Tuesday evening. “That’s when we believe the slowdown in revisions on the earnings side will reach its crescendo.”

Wilson’s prediction of the S&P 500 at around 3,000 would mean the benchmark index would lose a quarter of its value from Tuesday night’s close at 3,957.62. “The bear market isn’t over yet,” Wilson said, adding, “We have significantly lower lows if our earnings forecast is right.”

While most other strategists struggled to predict the S&P 500’s 17% decline over the past year, Wilson — who’s the No. 1 stock strategist of late — was Institutional Investor Survey – said pricing had been relatively easy in the first half of this year – it just had to be bearish and hold its position. CNBC’s Market Strategist Survey mid-year target for June 2022 had predicted the S&P 500 to rise from 3,750 to an average of 4,684. Wilson represented the most pessimistic outlook at the time with his prediction of 3,900.

Over the next year, Morgan Stanley forecasts the stock market to plummet for the first few months of next year before recovering to around 3,900 by the end of 2023.

A short rally and then a big drop

Wilson says it’s not about year-end predictions, it’s about the wild short-term swings undertaken to get there. “I mean nobody cares what’s going to happen in 12 months. You have to manage the next three to six months. That’s where we actually think there’s a significant downside,” predicts Wilson.

As companies report lower earnings in the first quarter of the year, Morgan Stanley predicts that shy investors will flee equities regardless of their sector.

“The greatest damage will happen in these larger companies – not just in technology, by the way. It could be consumer. It could be industrial,” Wilson said. “When these stocks had a rough time in October, the money flowed into these other areas. So part of that rally was driven by money movement just by repositioning.”

But luckily for optimistic investors, Wilson doesn’t forecast a stock market crash before next year. “This is not the time to sell everything and run for the hills, as that is likely not the case until earnings drop in January [and] February,” he said.

Wilson previously predicted the S&P 500 could hit 4,150 by the end of the year in a short-lived rally that will roll off into the new year. Speaking of thoughts on the market Podcast in early November, Wilson said, “We’re now at a point where both the bond and equity markets may be pricing in too much hawkish stance… This could bring some relief to equities in the near term.”

With the S&P 500 hovering around the 4,000 mark, this forecast is on track so far. “It’s our job to call out these tactical rallies,” Wilson said Tuesday. “We’re right about that. I still think this tactical rally has legs until the end of the year.”

But after ushering in the new year and earnings reports sending stocks to “lower lows” in the first quarter of 2023, investors are finally in for some optimism, says Wilson. “You’re going to hit a new low sometime in the first quarter and that’s going to be a great buying opportunity,” Wilson said in another interview with CNBC last week, adding, “It’s going to be a wild ride.”

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