Morgan Stanley's Mike Wilson Says Profit Recession Still Underway, Reiterates 3,900 Year-End Target For S&P 500

Morgan Stanley's top equity strategist Mike Wilson has reportedly reiterated his year-end target of 3,900 on the S&P 500 Index while warning that a profit recession is still underway.

"Inflation is going to come down. It's not going to be good for stocks because that is where the earnings power has been coming from," said Wilson, according to a Bloomberg report. The strategist had voiced his view prior to the release of the Fed policy on Wednesday.

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The expert and his team of strategists had said in a note earlier they expect S&P earnings to drop 16% as against forecasts for a decline of just 2.4% this year from sell-side analysts who have raised their earnings expectations.

The strategist said that technology stocks that drove the recent market rally had the biggest earnings recession.

"The presumption is that it's over," but "it's going to persist into the second half of the year," he added. "It's going to get worse before it improves next year."

Price Action: Although major Wall Street indices ended in the green following the Fed's policy announcement, bond traders seemed to be raising their bets on the probability the central bank will likely tip the U.S. economy into a recession.

The iShares 1-3 Year Treasury Bond ETF SHY shed 0.06% on Wednesday, according to Benzinga Pro.

Wilson is overweight cash and underweight stocks. He said that the market suffers from a very broad overvaluation but believes energy and financials are among the sectors that can be bought cheaply.

"The question is, ‘What are earnings going to do?'" Wilson said, according to the report.

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