The US economy is firmly in the middle of a slowdown that’s turning out to be worse than expected amid the war in Ukraine and China’s Covid Zero policy, according to Morgan Stanley strategists.
The S&P 500 is emerging from its worst first half in more than 50 years as investors worry that a toxic combination of a hawkish Fed and surging inflation will fuel an economic contraction. If macroeconomic data don’t confirm a recession, equity markets could rally further, according to Morgan Stanley, but if growth were to indeed contract, the S&P 500 may sink to 3,000 points — about 22% below its latest close, Wilson said.
With S&P 500 and Nasdaq 100 forward earnings estimates both more than 20% above the post-global financial crisis trend, there are signs that profit expectations will be cut over the next few months, Wilson said.