Morgan Stanley’s Mike Wilson is sticking with his bearish call for a tactical correction despite the recent rally driven by technology stocks. “Hotter but shorter cycles persist — we continue to forecast an earnings recession this year that we don’t think is priced,” Wilson, the bank’s head of U.S. equity strategy, said in a note. “We still expect a tactical correction as the cyclical bear market concludes.” The widely followed strategist stood by his base case for the S & P 500 to finish 2023 at 3,900, about 9% below Friday’s close of 4,282.37. Wilson’s forecast is well below the average year-end forecast of 4,157 from Wall Street strategists, according to CNBC Pro’s market strategist survey , which rounds up the top 15 strategists’ predictions. .SPX YTD mountain S & P 500 Wilson has been one of the biggest bears on Wall Street over the past year, and he’s been warning recently about high valuations that are hard to justify based on the outlook for earnings. The S & P 500 has gained more than 2% this month alone, pushing its 2023 gains to nearly 12%. The tech-heavy Nasdaq Composite just notched its sixth straight weekly gain, a streak not seen since 2020, and it’s up 27% so far this year. Wilson said the market’s solid performance so far can be attributed to a couple of factors, including the anticipation of a Federal Reserve pivot, a persistent improvement in liquidity, outperformance of a handful of mega-cap stocks and the belief that the worst of the earnings recession is behind us. “We don’t think the emergence of these factors negates our tactical downside call as we see 2023 earnings facing significant headwinds,” Wilson said. “At current valuation levels, we believe that the equity market is optimistically discounting both Fed rate cuts in 2023 and durable growth. We view the likelihood of those outcomes playing out simultaneously as low.” The strategist said he recommends investors focus on stocks with defensive characteristics, operational efficiency and earnings stability. — CNBC’s Michael Bloom contributed reporting.
