Experts at Morgan Stanley, a prominent investment bank, are warning that the US stock market is at risk of a 22% drop in 2023 and that a recession could worsen its biggest annual loss since the financial crisis of 2008.
According to Bloomberg, the bank's Chief Strategist, Michael Wilson, believes that corporate earnings estimates are too high and that the stock market could drop more than 20%.
Despite high corporate earnings estimates and stock market risk being at its lowest point since before 2008, investors are reportedly becoming increasingly pessimistic about economic growth prospects. This suggests that the S&P 500 stock market index could fall far below the 3,500-3,600 points predicted by market analysts in the event of a mild recession.
The consensus may be correct in direction, but wrong in terms of magnitude, said Wilson, warning that the index could drop as low as 3,000 points, a 22% decline from current levels.
Wilson attributes this pessimistic outlook to peak inflation, which while positive for bond markets, could also have a "very negative" impact on profits. Strategists at Deutsche Bank Group AG share Wilson's pessimistic approach, also anticipating a decline in US earnings in 2023.
Another US investment bank, Goldman Sachs also believes that earning expectations are too high, and the pressure on profit margins, changes in US corporate tax policies, and the probability of a recession could overshadow the positive impact of China's economic reopening.
Morgan Stanley, investment bank, US stock market, drop, recession, financial crisis, 2008, corporate earnings, stock market risk, economic growth, S&P 500, peak inflation, bond markets, profit margins, US corporate tax policies.
Morgan Stanley predicts massive stock market crash in US
US stock market slump forecasted by Morgan Stanley
Morgan Stanley warns of significant decline in US stocks
Massive drop in US stocks predicted by Morgan Stanley
Morgan Stanley anticipates steep fall in US stock market
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