$MS Feels Earnings in the $SPX Will Drop

MarketWatch headline: Here’s what Morgan Stanley says will fuel another decline in stocks

Published: Sept. 5, 2022 at 5:56 a.m. ET


What’s hit U.S. stocks so much this year– the S&P 500 SPX, -1.07% has dropped 18% — has been the surge in interest rates. After all, earnings per share estimates for the next 12 months only dropped 1.5%, and price-to-earnings ratios were actually 9% higher, at the lows of June.

“With the Fed emphatically dashing hopes for a dovish pivot, we think that asset markets may be entering fire and ice part deux. In contrast with part one, this time the decline in stocks will come mostly via a higher [equity risk premium] and lower earnings rather than higher rates,” says Wilson.

Morgan Stanley says its earnings model, based on inputs including the ISM manufacturing report, the Conference Board’s consumer confidence index, housing starts and credit spreads, suggests a big drop in earnings to come. Another model, based mostly on regional Fed data, also is forecasting an earnings slump.

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