“Morgan Stanley predicts 16% drop in S&P 500 profits in 2023, followed by a strong rebound in 2024 due to accommodative Federal Reserve policy. Wall Street Bank anticipates earnings to rebound by 23% next year, with S&P index projected to reach 4,200 levels. Positive factors, including AI-related tailwinds, buoy market indexes.”
In a recent note, strategists led by Michael Wilson at Morgan Stanley have issued a warning regarding a projected 16% decline in profits for S&P 500 companies this year. However, they express optimism about a sharp recovery in 2024, fueled by the belief that the Federal Reserve’s policies will become more accommodating.
The Wall Street Bank highlights the expectation of a significant earnings rebound, with a projected 23% surge next year. They anticipate a slip in earnings per share (EPS) for S&P companies from $195 to $185 in 2023, followed by a recovery to $239 in 2024. Wilson emphasizes that the current phase of the earnings cycle reflects the “bust” part of the boom/bust period that commenced in 2020, which he believes is not yet factored into current market prices.
Morgan Stanley maintains its target of 3,900 for the end of 2023 but predicts a rebound for the index to reach 4,200 levels in 2024. As of Friday’s close, the index stood at 4,282.37. The bank attributes the resilience of the indexes thus far to a range of positive news, including the anticipated shift in Federal Reserve policy, ongoing improvements in liquidity, and the positive impact of artificial intelligence on mega-cap companies like Nvidia Corp. These factors have prevented a market correction thus far, according to Morgan Stanley.
Overall, Morgan Stanley’s analysis suggests a temporary setback for S&P 500 companies in 2023 but foresees a robust recovery in 2024, driven by supportive Federal Reserve policies and positive market conditions.
