Stocks Set to Fall Further, Morgan Stanley CIO Warns Due to Economic Headwinds

Top Strategist Predicts Recession or High-Interest Rates Will Weigh on Corporate Earnings

May 10, 2023 - 07:15
May 10, 2023 - 07:14
 0  55
Stocks Set to Fall Further, Morgan Stanley CIO Warns Due to Economic Headwinds
Morgan Stanley CIO | Image Source: BNN Bloomberg

Key Points:

  • Morgan Stanley's top stock strategist, Mike Wilson, predicts further stock market declines.

  • Two key factors driving the decline: the possibility of a recession or the Federal Reserve maintaining high-interest rates.

  • Both factors are likely to negatively impact corporate earnings.

  • Wilson warns that corporate earnings could fall below estimates.

Morgan Stanley's top stock strategist, Mike Wilson, is warning that stocks will likely fall further due to two factors: the possibility of a recession or the Federal Reserve keeping interest rates high. These headwinds are likely to weigh on corporate earnings and cause them to fall below estimates. While recent stock market sentiment has been upbeat, Wilson believes investors are expecting interest rate cuts and durable growth, which are both unlikely. He warns of a "fire-and-ice" scenario where high inflation and the possibility of a recession will make it a difficult environment for stocks. Wilson predicts the worst earnings recession since 2008 could hit the market this year, causing stocks to fall 26%.

Investors Expect the Best of Both Worlds

Wilson points out that investors are currently expecting both interest rate cuts and durable growth, despite the probability of both happening being low. While this may be encouraging for the stock market, it is unlikely to occur, leading to trouble for corporate earnings and stocks.

Fire-and-Ice Narrative

Wilson previously warned of a "fire-and-ice" scenario, where high inflation and the possibility of a recession will weigh on corporate earnings. He believes this scenario is becoming more likely, and the negative impact on stocks will follow.

Worst Earnings Recession Since 2008

Wilson predicts that the worst earnings recession since 2008 could hit the market this year, causing stocks to fall 26%. He bases this prediction on leading indicators pointing to downward trends in earnings-per-share margins in the coming months.

Federal Reserve Actions

The Federal Reserve has already hiked interest rates, and investors are pricing in a 33% chance of a rate cut in July. However, other Wall Street strategists believe the Fed will pause and keep rates elevated. High-interest rates have already raised the odds of a recession and negatively impacted corporate profits by increasing the cost of borrowing.

Conclusion:

Wilson's warning of economic headwinds likely to impact the stock market reinforces the importance of diversifying investment portfolios. A well-diversified portfolio can help mitigate the impact of market fluctuations caused by factors outside of investors' control.

Also Read: Unleashing the Oracle of Omaha's Success: The Journey of Warren Buffett

iShook Opinion A Personal Note from the Desk of the CEO Welcome to iShook Finance, the premier finance news journalistic platform that brings you the most relevant, timely, and insightful information in the world of finance. As the CEO and founder, I am proud to share my vision and values with you, so you can better understand what drives our passion and commitment to delivering outstanding financial news. At iShook Finance, we believe that the world of finance is more than just numbers and spreadsheets; it's a living, breathing ecosystem that connects people, businesses, and governments. Our mission is to empower individuals and organizations to make informed decisions by providing accurate, in-depth, and thought-provoking financial journalism. My personal journey in the world of finance has been marked by curiosity, a relentless pursuit of knowledge, and a deep desire to share insights with others. As a finance enthusiast, I have always been passionate about understanding the intricacies of the global economy and the forces that shape it. With iShook Finance, my aim is to create a platform where our readers can access a wide range of perspectives, opinions, and expert analysis that will guide them through the ever-evolving financial landscape. Our team of dedicated journalists, analysts, and editors work tirelessly to bring you the most accurate and up-to-date information. We take great pride in our journalistic integrity and adhere to the highest ethical standards, ensuring that our content is always unbiased, balanced, and data-driven. At iShook Finance, we recognize that the world of finance is not a one-size-fits-all scenario. Our readers come from diverse backgrounds with unique financial goals and concerns. As such, we strive to provide a variety of content that caters to the needs of both seasoned professionals and novice investors alike. In today's fast-paced digital world, it is essential for us to stay ahead of the curve. We are committed to embracing emerging technologies, trends, and innovative storytelling methods to ensure that our content remains engaging, relevant, and accessible to our audience. As the CEO, my promise to you is that iShook Finance will continue to evolve and grow, staying true to our core mission of providing reliable and insightful financial news. I invite you to join us on this journey and share your thoughts, questions, and feedback with us. Together, we can redefine the way financial news is delivered, consumed, and understood. Thank you for choosing iShook Finance as your trusted source for finance news. Warm regards, Beni E Rachmanov CEO & Founder, iShook Co.