Morgan warns about US stocks

Morgan Stanley predicts a sharp decline in corporate earnings will put the brakes on the U.S. stock market rally. Instead, the investment bank is bullish on stocks in Japan, Taiwan and South Korea and recommends a position in long-term Treasuries and developed-market government bonds, including the dollar. Earnings per share for the S&P 500 is set to fall 16% this year, according to strategists led by Andrew Sheets. “We think the downside risk to U.S. earnings is there now. While a deteriorating liquidity backdrop will put downward pressure on equity valuations over the next three months, we also see disappointing EPS ahead as revenue growth slows and margins squeeze further,” Morgan Stanley analysts wrote in a note on Sunday. Morgan Stanley forecasts earnings per share for the S&P 500 at $185, compared with the strategists’ median estimate of $206. Sheets’ team sees the gauge at 3,900 at year-end, with Friday’s close at 4,282.37. It’s on the cusp of a bull market after rallying 19.7% from October lows, with enthusiasm for AI stocks rising despite the Fed’s rate hikes and concerns about a potential recession.