“Our estimates for ’22/’23/’24 are now 3%/13%/14% below consensus, respectively. Under our baseline assumption, 2023 will bring a slight decline in profits (-3% year-on-year growth), although we do not include an economic recession in this scenario. The logic here is that nominal earnings growth will slow but remain positive (single-digit territory), while margins will contract materially (1-1.5% margin compression) driven by pressures. of fixed costs, particularly when it comes to labor,” Wilson explains in a note to clients.
As for the reasons Morgan Stanley made further downgrades to EPS forecasts, the strategist cites slowing growth, rather than inflation and the Fed..
“We don’t think the bear market is over if our earnings forecasts are correct,” Wilson warns, adding that the S&P500 will hit “lows” of 3,400 in the fourth quarter, while the 3,000 level could come into play if a recession.
“From there, we believe prices will rally to our target scenario (3,900) or downside target (3,350) by June 2023. In the very short term, if interest rates fall, equities may hold out or even rise until later this month, when quantitative tightening could increase and earnings estimates are likely to be revised lower,” Wilson concludes.
Source: Ambito
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