Why Mike Wilson Remains Bearish: "Investors Are Making Two Key Assumptions That Are Wrong"

By Michael Wilson, chief equity strategist at Morgan Stanley

Last week, we released our mid-year outlooks for strategy and economics. For US equities, our key differentiated view now centers on our well-below-consensus earnings forecast for 2023 followed by our forecast for a sharp EPS recovery in 2024. While our 2023 forecast was also lower than consensus six months ago, that spread is greater today as we have cut our 2023 forecast further, while the rest of the Street, and the buy side, have raised theirs. Why is the difference so great and how do we justify such a lower forecast for 2023?

For the past several years, our overarching view on markets has been shaped by our "hotter but shorter" cycle framework. We wrote a report over two years ago which argued that this cycle would run hotter but shorter than what we have experienced over the past 50 years. We based this thesis in part on a comparison with the post-WWII period, which looks quite similar to today in many respects.