S&P 500 Index to tank towards 3,400 on negative earnings revisions – Morgan Stanley

Will earnings growth reaccelerate? While markets look forward to an acceleration in earnings growth and a subsequent rise in valuations over the next year, there are risks to this outlook, Mike Wilson, Chief Investment Officer and Chief US Equity Strategist for Morgan Stanley reports.

US stocks in the midst of a bear market rally

“Now, valuations have risen back to 17.5x earnings, despite a rising 10-year Treasury yield. In order for this to make sense, however, one must take the view that earnings growth will reaccelerate later this year. Time will tell, but we think S&P 500 earnings growth will slow further rather than reaccelerate.”

“The bear market rally that began a few weeks ago can continue for a few more weeks until the Fed makes it crystal clear they remain hawkish and earnings revisions fall well into negative territory. That combination should ultimately take the S&P 500 down towards our 3400 target by mid to late August.”