Morgan Stanley's Wilson Says Unclear Growth to Crimp Stocks

A double whammy of economic uncertainty and a weak period for corporate earnings forecasts is likely to cap stock market gains, according to Morgan Stanley’s Michael Wilson.

The strategist — among the most notable bearish voices on U.S. equities until last year — said he expects the S&P 500 Index to trade in a range of 5,000 to 5,400 points as macroeconomic data flash no clear signals over the short term.

The upper end of that range implies gains of just 1% from current levels, while the lower end would mean a decline of 6.4%.

In addition, analysts’ profit downgrades are expected to outnumber upgrades in line with seasonal weakness, “which is one reason why the third quarter is typically the most challenging for stocks,” Wilson wrote in a note.

U.S. stocks have been roiled in the past month by worries that the Federal Reserve had been too slow to cut interest rates in time to prevent a recession.

While the benchmark S&P 500 has recouped most declines from last week, it remains nearly 6% below a mid-July record high. Attention now turns to Wednesday’s key consumer prices report.

Growth fears took the shine off an upbeat second-quarter earnings season. S&P 500 companies are on track to post a 13% jump in profits, the strongest gain since 2021.