Morgan Stanley’s Mike Wilson sees a rebound in earnings in the latter half of 2024 but for now, his message to investors — stick to the stock picker’s playbook as things are going to get worse before they get better.
Mike Wilson’s earnings per share target for this year of $US185 is the lowest on Wall Street, while his EPS forecast for 2024, $US228, predicts a 23 per cent rebound.“There’s going to be this sort of boom-bust-boom which is in process now,” Wilson said in a phone interview. He expects earnings to remain under pressure over the next six to nine months as the US economy slows down.
The recent move lower in stocks was driven by the repricing of a term premium on US Treasuries, according to Wilson. The surge in bond yields is weighing on valuations for equities and he expects it to persist.“Even if you assume there’s no recession, which is our base case, earnings do not support a 4200 to 4300 level for the S&P 500,” he said.and to Wilson the numbers fit the narrative that the Federal Reserve will keep higher rates for longer.
And a potential spike in oil prices as a result of Israel-Hamas war remains a wild card. “The market interpretation is that it’s an isolated conflict, not a broader regional conflict for now,” he said. “But if oil prices start to really shoot up as a result of this, then I will become more worried about equity margins.”