Stock Market Challenges Expected in First Half of Year
According to Morgan Stanley's top stock strategist, the stock market is anticipated to encounter obstacles in the first half of 2023. Investors may face lackluster returns for the S&P 500 over the next three months, as stated by Mike Wilson. This is attributed to risks arising from Trump's trade and immigration policies, which could hinder growth.
Mike Wilson, the bank's chief investment officer, predicts the S&P 500 will trade within a range of 5,500-6,100 for the following three to six months. This indicates a potential decline of up to 8% or an increase of just over 1% over the ensuing months. Wilson explained in a recent episode of Morgan Stanley's "Thoughts on the Market" podcast that this outcome will largely hinge on risks posed by Trump's policies.
"Tariffs and immigration enforcement were always anticipated, both of which have negative short-term growth implications," Wilson stated. "In my opinion, investors simply grew complacent about these risks and are now facing them in real time."
Investors have been optimistic about the prospects of higher growth fueled by Trump's policies. Goldman Sachs projected that the president's tax cuts could potentially boost earnings growth in the S&P 500 over the next two years. However, Wilson emphasized that these policies will take time to positively impact the market.
"This is consistent with our view that the first half of the year is likely to prove more challenging for stocks, as equity-negative policies could be implemented promptly, while equity-positive policies such as deregulation, tax extensions, and reduced government spending need time to materialize," he explained.
Trump's tariff plan became more evident when the president announced a 25% tariff on imports from Canada and Mexico. While both tariff plans have been delayed for at least a month, the announcement rekindled concerns about rising inflation, higher rates, and slower growth. Goldman Sachs estimates that tariffs on Canada and Mexico could reduce earnings per share for S&P 500 companies by 2%-3%. The bank predicts that the benchmark index could decline by up to 5% in the coming months.
Wilson added in a separate research note on Monday, "From here, the market's previous baseline view will likely be tested the longer these tariffs remain in place."
Morgan Stanley, however, anticipates that stocks will still perform well over the year, consistent with most forecasts on Wall Street. The bank projects the S&P 500 to close the year at 6,500, indicating an 8% upside from current levels.