Mike Wilson, Morgan Stanley’s chief investment officer.
Bloomberg TV
Morgan Stanley’s Mike Wilson expects the benchmark S&P 500 will bottom out next year.
That presents stock investors with a “terrific buying opportunity,” the investment chief told CNBC.
US stocks have been turbulent this year as the Fed hikes interest rates to fight inflation.
The S&P 500 will hit a new a low early next year, presenting US stock investors with a chance to jump in and benefit, according to Morgan Stanley’s top stock picker.
“You’re going to make a new low some time in the first quarter, and that will be a terrific buying opportunity,” the bank’s CIO Mike Wilson said in a Sunday interview with CNBC.
“Because by the time we get to the end of next year, we’ll be looking at 2024, when the earnings will actually be accelerating again,” he added.
Wilson made an S&P 500 price call of 3,900 for the end of 2023, adding that US stocks have a volatile path ahead as they approach the end of the current bear market.
“I think we’re in the final stages. But the final stages can be very challenging, right?” he said.
Inflation, higher interest rates, and the threat of a US recession has suppressed investor appetite for stocks this year, and the benchmark stock index is down nearly 17% year-to-date. It closed out Friday with a 0.48% gain, but a loss for the week.
The S&P 500 slipped into bear market territory in June, as the Federal Reserve slammed the brakes on the US economy with aggressive interest rate hikes. It’s trying to prevent 40-year high inflation, triggered in part due to Russia’s war with Ukraine, from becoming entrenched.
The Fed in 2022 has lifted the fed funds rate from 0% to a range of 3.75%-4%, including four consecutive, hefty hikes of 0.75 percentage points. Inflation eased somewhat in October, but the monthly headline rate of 7.7% exceeds the Fed’s 2% target.
“Now it’s a more of a two-way risk. And I think we’re going to be in that two-way risk probably until the year end,” Wilson added, said the first 7-8 months of the year was a “straight down move.”
“The final move of the bear market probably comes next year in the first quarter, when the earnings finally catch up to where we think they’re going to be next year,” he said.
Wilson said earnings expectations for next year are 20% too high, but suggested that volatility, rather than a hit to stock prices, is in focus for Morgan Stanley.
“As bearish as we are next year on earnings, the price damage probably isn’t that bad over the next 12 months, it’s the path that’s going to be really tricky,” he said.