Stock Market Crash: Morgan Stanley CIO Lists 7 Reasons Crash is Coming

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Morgan Stanley says its earnings model is currently 'projecting a much more dire outcome than consensus' — and shares 6 other reasons stocks are ripe for a crash

Morgan Stanley CIO Mike Wilson has been calling for an S&P 500 bottom between 3,000-3,300.China-Taiwan tensions, the debt ceiling standoff, and a credit crunch threaten stocks, he said.is once again urging investors to proceed with caution, warning that risks continue to pile up for stocks despite the recent rally.

First among those reasons is that valuations remain historically high, Wilson said. Higher valuations might mean poorer future returns, and lower valuations allow for higher upside potential. Valuations are tied to performance expectations, which Wilson says are also too high. Investors are anticipating better earnings performance than they should given that hawkish Federal Reserve policy is likely to weigh on economic growth, Wilson believes. "A very healthy reacceleration is baked into 2H consensus earnings estimates . This flies directly in the face of our forecasts, which continue to point materially lower," he said.

 

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