Morgan Stanley Sees Slump In US Earnings In 2023, Sharp Rebound Next Year

In a note on Monday, strategists led by Michael Wilson said that they expect earnings to rebound sharply, with a 23 per cent jump next year

Morgan Stanley predicted the index to rebound to 4,200 levels in 2024 while keeping its 2023-end target unchanged at 3,900.

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Morgan Stanley warns of a 16 per cent drop in profit for S&P 500 companies this year, followed by a sharp rebound in 2024 when analysts say the Federal Reserve's policy will become more accommodative, news agency Reuters reported. In a note on Monday, strategists led by Michael Wilson said that they expect earnings to rebound sharply, with a 23 per cent jump next year.

According to the report, the Wall Street bank warned that the EPS of S&P companies could slip to $185 from $195 in 2023 before recovering to $239 next year. "The boom/bust period that began in 2020 is currently in the bust part of the earnings cycle — a dynamic that's not yet priced," Wilson said.

Morgan Stanley predicted the index to rebound to 4,200 levels in 2024 while keeping its 2023-end target unchanged at 3,900. The index closed at 4,282.37 on Friday.

A slew of positive news, with expectations of a Fed pivot, persistent improvement in liquidity, and AI-related tailwinds to mega-cap names such as Nvidia Corp, have buoyed indexes so far, Morgan Stanley said. Such factors have held back a correction in markets, the bank added.

Meanwhile, the US Senate on Thursday passed bipartisan legislation backed by President Joe Biden that lifts the government's $31.4-trillion debt ceiling, reported by Reuters. This move has averted what would have been a first-ever default by the US. According to the report by the news agency, the Senate voted 63-36 to approve the bill that had been passed on Wednesday by the House of Representatives as lawmakers raced against the clock following months of partisan bickering between Democrats and Republicans.

The Treasury Department had warned it would be unable to pay all its bills on June 5 if Congress failed to act by then. "We are avoiding default tonight," Senate Majority Leader Chuck Schumer said on Thursday as he steered the legislation through his 100-member chamber.