Markets are receiving a wake-up call in 2023, says Morgan Stanley, who offers a plan for investors to prepare.

According to Fed Reserve Governor Christopher Waller and several strategists, the weaker-than-expected October CPI last week that took the S&P 500 to its best level in five months was overstated.

His words may be successful as stock futures indicate a softer start like the last full week before Thanksgiving. We will also receive retail sales data this week.

And it is that time of year when Wall Street begins to launch its market predictions for 2023, a certainly unenviable task. Our call of the day comes from Morgan Stanley where a team led by top US strategist Mike Wilson sees the S&P 500 SPX,
+ 0.92%
ending next year almost on par with where it is now, at 3,900.

While it might seem a little quiet, the interim period will be far from that once Wall Street receives a wake-up call about earnings hopes that are still too optimistic, the bank says.

“We remain strongly convinced that the bottom-up consensus gains of 2023 are
materially too high, “said Wilson and the team, who revised their 2023 earnings per share forecast down another 8% to $ 195, which is 16% below the consensus and 11. % less on an annual basis.

“After what’s left of this ongoing tactical rally, we see the S&P 500 discount the ’23 earnings risk in Q123 via a price low of ~ 3.000-3.300. We believe this happens before the eventual EPS low, which is typical of earnings recessions, ”Wilson said.

“Equities should start processing that re-acceleration of growth well in advance and rebound sharply to finish the year at 3,900 in our base case,” he said.

As for portfolio moves, Wilson said they will remain on the defensive until those estimates “reflect the slump”. They boosted overweight staples and shrunk real estate at the same weight, while also leaving overweight in the healthcare, utilities and defensive sectors
oriented energy titles. Consumer Discretionary Goods and Technology Hardware remain unchanged as they are underweighted.

The possible upside is that a turbulent 2023 could give way to a better 2024, where Wilson and co. see a strong rebound as positive growth in operating leverage – revenue growing faster than spending – “that is, the next boom”.

Regarding the position of the markets right now, Wilson is warning investors to remain flexible, referring to the bank’s bullish tactical shift four weeks ago.

“After a 12-month period of stubbornly being bearish, we think we will now enter the final stages of the bear market where two-way risk must be respected,” he said.

He sees a “window of opportunity where long-term interest rates typically fall before the magnitude of the slowdown is reflected in earnings estimates and the economy,” defining it as an end-of-cycle period between the Fed’s last hike. and the recession.

Morgan Stanley / Bloomberg

But remember they are only talking on break here. “So while we think there is a window for stocks to reach the end of the year as markets dream of a break, a Fed cutting is likely a bad sign that the recession has come (negative paychecks),” he said. Wilson said. His graph shows that stocks don’t react well to this:

Morgan Stanley / Bloomberg

Markets

ES00 stock futures,
-0.25%

NQ00,
-0.44%

ES00,
-0.25%
are slightly lower, with oil prices CL.1,
-1.34%
flat, while the DXY dollar,
+ 0.75%
is higher, perhaps taking a cue from the Fed’s Waller comments. It was a mixed Asian session, with gains at Hong Kong HSI,
+ 1.70%,
leaks in Tokyo NIK,
-1.06%.

The buzz

Retail sales, New York manufacturing status and some real estate market data are in the data spotlight this week. The New York Fed’s 1- and 5-year inflation expectations are expected on Monday.

Tyson Foods TSN,
+ 1.43%
Monday will report the results, with retailers at the center also like Walmart WMT,
+ 0.15%
and Home Depot HD,
+ 1.04%
reportage on Tuesday, with Target TGT,
+ 5.44%
Wednesday, together with Cisco CSCO,
-1.91%
and Nvidia NVDA,
+ 3.66%.

The DIS Disney,
+ 5.03%
Marvel-owned sequel “Black Panther: Wakanda Forever” saw the second best opening weekend of 2022 and AMC shares AMC,
+ 17.46%
I’m in premarket.

“Repair your businesses. Or Congress will, “Senator Ed Markey replies to Tesla TSLA,
+ 2.75%
boss Elon Musk for insulting Twitter owner. Musk, meanwhile, told a G20 forum that he has “too much work” on his plate.

On the medium-term front, the victories of Nevada and Arizona mean that the Democrats will remain in the Senate, with the Republicans less than 10 wins from House control.

Former FTX CEO Sam Bankman-Fried sent out some puzzling tweets as investors continue to watch for more fallout from his bankrupt cryptocurrency exchange. Bitcoin BTCUSD,
+ 2.46%
is slightly above $ 16,775.

AND: You need to understand what’s happening at FTX, even if you don’t have cryptocurrencies

US President Joe Biden will hold his first in-person meeting with Chinese President Xi Jinping on Monday on the sidelines of the G20. And shares in Chinese real estate stocks skyrocketed on Monday after Beijing signed aid measures for the ailing sector.

The best of the web

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The graph

Does the stock market rally still have to be done? Look at the daily moving average of 200 on the S&P 500, some say.

“This provided very tough resistance in March and August. Therefore, if it manages to significantly cross that line, it will signal that the fourth quarter rally could / should last until the end of the year, ”Matt Maley, chief market strategist at Miller + Tabak, told clients. his chart:

Miller + Tabak / Bloomberg

The tickers

These were the most searched tickers on MarketWatch at 6am Eastern:

Ticker

Security name

TSLA,
+ 2.75%

Tesla

GME,
+ 4.90%

GameStop

AMC,
+ 17.46%

AMC entertainment

NIO,
+ 11.80%

NIO

DWAC,
+ 10.24%

Digital World Acquisition Corp.

AAPL,
+ 1.93%

Apple

AMZN,
+ 4.31%

Amazon.com

MULN,
-6.39%

Mullen Automotive

APE,
+ 15.00%

AMC Entertainment Holdings

BBBY,
+ 1.80%

Bath to bed and beyond

Random reads

The man finds the missing $ 4.7 million check in Haribo and is rewarded with gummy bears.

The diver received a rare octopus hug.

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