Winter of 'disconnect': Morgan Stanley's Mike Wilson braces for 20%+ stock drop (via CNBCFastMoney)
S&P 500"Even though a majority of institutional clients think we're probably going to be in a recession, they don't seem to be afraid of it," the firm's CIO and chief U.S. equity strategist told CNBC's "financials
on Friday, will jolt the market by coming in sharply below expectations. He believes investors will be surprised by how dramatically earnings need to adjust. "That's another area investors are being a little bit complacent," he said. "Costs are increasing faster than net revenues.""The full-year estimate has got to come down," he added. "Negative operating leverage is really starting to flow through to the income statement from the balance sheet... This is a very underappreciated development during Covid. We over-earned during the pandemic because there was positive operating leverage.
And, investors could get hit with a double whammy due to the timing of the next Federal Reserve interest rate decision on Feb. 1. Wilson anticipates the Fed won't appease investors by signaling plans to pivot. "Our call is predicated mostly on earnings and the fact that the Fed probably isn't going to be as reactive to a slowdown as they have been historically," Wilson said. "They're not going to be slashing rates into a growth slowdown."
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