Morgan Stanley, a prominent Wall Street bank, has issued a warning about a potential 16% decline in profits for S&P 500 companies in the current year, followed by a significant recovery in 2024. The bank’s strategists, led by Michael Wilson, anticipate a strong rebound in earnings with a projected 23% increase next year. This forecast is based on their belief that the Federal Reserve’s policy will become more accommodative in 2024.
Earnings Outlook and Analysis
According to Morgan Stanley’s note, the bank has expressed concern that the earnings per share (EPS) of S&P companies could decline from $195 in 2023 to $185 before rebounding to $239 in the subsequent year. Wilson points out that the current phase of the earnings cycle is experiencing a downturn following the boom period that began in 2020. He suggests that this dynamic has yet to be fully reflected in market prices.
Morgan Stanley has maintained its target of 3,900 for the S&P 500 index by the end of 2023, while predicting a rebound to 4,200 levels in 2024. The index closed at 4,282.37 on the preceding Friday. The bank credits a series of positive developments, including the anticipation of a Federal Reserve pivot, consistent improvements in liquidity, and the favorable impact of artificial intelligence (AI) advancements on mega-cap companies such as Nvidia Corp, for preventing a market correction thus far.
Debt Ceiling Legislation
In other news, the US Senate recently passed bipartisan legislation, endorsed by President Joe Biden, that addresses the government’s $31.4-trillion debt ceiling. This action has effectively averted what would have been the first-ever default by the US. The bill was initially approved by the House of Representatives on Wednesday, and the Senate followed suit with a 63-36 vote. The passage of this legislation is the result of lawmakers racing against the clock after months of partisan disputes between Democrats and Republicans. The Treasury Department had previously warned that it would be unable to meet all its financial obligations on June 5 if Congress failed to act. Senate Majority Leader Chuck Schumer confirmed the successful avoidance of default as he guided the bill through the Senate.
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