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Morgan Stanley Is Concerned about an Earnings Recession

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Morgan Stanley

Morgan Stanley’s (MS) chief equity strategist, Michael Wilson, is the most bearish on Wall Street regarding the projection for the S&P 500’s (SPY) target for the end of 2019. He had a target price of 2,750 for the S&P 500 at the beginning of 2019. On April 1, he reiterated that target price. Wilson was also among the first strategists to warn about an earnings recession. Morgan Stanley lowered its 2019 S&P 500 EPS growth expectation to 1% from 4.3% in February.

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Rolling bear market

Wilson also doesn’t believe in the market consensus that the earnings will accelerate again in the second half of the year.

As reported by CNBC, Wilson said, “The earnings profit recession is real.” Wilson has repeatedly characterized this market as a “rolling bear market.” He expects the S&P 500 to trade within a range of 2,400–3,000.

Earnings deceleration

An “earnings recession” is at least two quarters of year-over-year corporate profit decline. Wilson sees that happening to the US markets.

According to Factset, analysts expect a decline of 3.9% in the earnings for the S&P 500 in the first quarter. The lower estimate at the end of December 2018 was 2.9%. The EPS estimates for all of the 11 sectors have been revised downward since the end of 2018, which implies expectations of a broad-based decline.

Morgan Stanley recommends that investors get defensive and buy stocks in utilities (XLU) and consumer staples. Morgan Stanley also warned investors against consumer discretionary and technology stocks (QQQ).

Concerns about slowing growth have been echoed by several companies. FedEx (FDX), BMW (BAMXF), and UBS have been warning of a global economic slowdown, particularly in China. US companies including Apple (AAPL) and NVIDIA (NVDA) have also warned that China’s (FXI) slowdown is hurting their earnings.

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