The firm warned that earnings will fall much more than expected as margins shrink.Don't be fooled by the stock market's recent rebound — the lows for US stocks aren't in yet.
Earnings can decline even if revenue remains strong, according to Morgan Stanley. That was the case this past quarter: profits receded about 3% year-over-year in Q4 2022 despite sales growth of 5.6%, which is evidence that margins are starting to come under pressure. However, earnings declines likely won't happen overnight. Downward revisions typically take place slowly, Pauker wrote, adding that it's taken an average of 15 months for earnings recessions to go into effect in the past.In the note, Morgan Stanley's strategists highlighted an unconventional investing strategy for the coming earnings weakness: buying technology stocks.
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