According to strategists at Morgan Stanley, earnings per share of the S&P 500 are expected to decline by 16 percent this year. This is one of the most pessimistic expectations on Wall Street, writes a Bloomberg -, Goldman Sachs, for example, expects modest growth this year.
In an analysis published on Sunday, Morgan Stanley analysts wrote:
We believe there is now downside risk to US corporate profits
They believe that not only will the deteriorating liquidity environment weigh on stock valuations over the next three months, but earnings per share will also disappoint as revenue growth slows and margins continue to shrink.
Morgan Stanley currently expects earnings per share for the S&P 500 to be $185 this year, well below the median estimate of $206. The team led by Andrew Sheets expects the S&P 500 to reach 3,900 points, while the benchmark closed at 4,282.37 points on Friday.
In addition to these insights, the bank’s strategists recommend defensive stocks and developed market investment grade bonds. However, it is worth noting that not all strategists are so pessimistic. Evercore ISI, for example, raised its target price for the S&P 500 this year by 7.2 percent to 4,450 points, after the analyst house said that declining inflationary pressure and continued government support will favor the stock market.
Here are some additional announcements from Morgan Stanley strategists:
- European stock markets could fall as much as 10 percent in the coming months, although downside risk is somewhat limited due to attractive valuations.
- Europe is expected to benefit from a rotation towards relatively cheaper international securities and away from US growth stocks.
- In Asia, the bank’s strategists joined those who cut their price targets on the leading stock indexes. This was justified by the delayed rate of improvement of corporate results, weaker foreign exchange market prospects, and geopolitical uncertainties.
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