Morgan Stanley: the US stock market may collapse by 22% in a recession in 2023

Morgan Stanley investment bank experts expect that the US stock market may face a larger-than-expected sell-off in the event of a recession. And this sell-off could lead to a 22% drop in the market from current levels.

The bank's strategist Michael Wilson, who predicted a sell-off on the US stock market in 2022, suggested that the S&P 500 indicator could fall to about 3,000 points by the end of this year. The current value of the index is 3892.09 points.

In general, the market consensus forecast at the moment provides that the US economy will enter a moderate recession starting in the first half of 2023, and then recover in the second half of the year. The growth will be facilitated by the fact that, most likely, the US Federal Reserve System will complete the cycle of raising interest rates and move to lowering them in response to the deterioration of the economic situation.

Morgan Stanley analysts note that despite the general pessimism of investors regarding the growth of the US economy, corporate profit forecasts are still too high, and the risk premium for shares (ERP) is at its lowest level since 2008. Experts believe that the market has not included a recession in the forecasts, taking into account the indicator (ERP).

Thus, according to Morgan Stanley's baseline forecast, the cumulative earnings estimate of S&P 500 companies per share in 2023 will be $195. At the same time, there is an even more pessimistic scenario, which provides for an indicator at the level of $180.