Morgan Stanley’s Mike Wilson said investors should not be lulled into believing the headwinds for US equities are abating.
Morgan Stanley US equity strategist Mike Wilson reiterated his concern that earnings estimates are too high and record narrow breadth suggests the broader market could suddenly acknowledge this risk.
In a note, Mr Wilson said consensus expects 5 per cent sales growth but negative 8 per cent earnings growth for the first quarter as negative operating leverage cuts into margins. “Investor focus is likely to be on credit availability, consumer spending, margins, and forward guidance, in particular,” Mr Wilson said.The Sun Also Rises;The broader market has held relatively steady despite the banking crisis though “that should not necessarily be viewed as a signal that all is well”, Mr Wilson said. “On the contrary, the gradual deterioration in the growth outlook continues, which means even these large cap indices are at risk of a sudden fall.
“If/when revenues begin to disappoint ... margin degradation can be much more sudden, and that’s when the market can suddenly get in front of the earnings decline we are forecasting.”“The Fed’s favourite measure of core services inflation remains too high for its liking. In some ways, it feels like our original thesis of Fire and Ice could be back in play with the Fed forced to stay with its tightening path into a slowing economy and earnings.
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