By Senad Karaahmetovic
Morgan Stanley's U.S. equity strategists have reiterated their stance that the market is yet to hit ultimate lows.
The M2, a measure of the U.S. money stock, growth is "now into the danger zone where financial/economic stress occurs," the strategists warned clients. While the Fed could fix M2 growth by restarting Q2, the central bank still can't stop the oncoming earnings recession.
"The oncoming earnings recession is likely to pick up steam this earnings season or next. The host of macro risks that have emerged (Europe weakness, dollar strength, higher rates, China reopening uncertainty, etc.) are likely to be in focus in corporate commentary," the strategists wrote in a client note.
As a result, Morgan Stanley remains bearish and sellers of rallies in equities "until EPS forecasts de-rate, and the price is right."
The strategists again reiterated that it is "too soon to call the end" and the S&P 500, as well as other major indexes, are yet to hit THE low.
"PMIs remain in the 50s, forward earnings estimates are down just 1%, and the equity risk premium is 50+ basis points below where it was at the June S&P price low. Further, the Fed continues to tighten and dollar strength poses further risk to earnings," the strategists concluded.
Morgan Stanley's June 2023 price target for the S&P 500 remains 3900, while the bear case calls for a drop to 3350.