- Morgan Stanley’s top stock strategist expects the market to struggle in the first half of the year.
- Investors could see weak returns for the S&P 500 for at least the next 3 months, Mike Wilson said.
- That’s due to risks stemming from Trump’s trade and immigration policies, which could weigh on growth.
The stock market will struggle to keep the 2024 rally alive in the early months of this year, thanks to a swirl of challenges in the macroeconomic outlook that could make it difficult for stocks to rise much higher, according to Morgan Stanley’s top stock strategist.
Mike Wilson, the chief investment officer at the bank, said he sees the S&P 500 trading in a range of 5,500-6,100 for the next three to six months. That implies the index dropping as much as 8% or rising just over 1% over the next several months.
It’s an outcome that will largely be driven by risks stemming from Trump’s policies, Wilson said in a recent episode on Morgan Stanley’s “Thoughts on the Market” podcast.
“Tariffs were always on the agenda, as was immigration enforcement, both of which are growth negative in the short-term,” Wilson said. “In my view, investors simply got complacent about these risks and are now dealing with them in real time.”
Investors have been bullish on the outlook for higher growth as a result of Trump’s policies. The president’s plan to cut taxes, for instance, was thought to potentially boost earnings growth in the S&P 500 for the next two years, according to a projection from Goldman Sachs.
But it’ll take time for those policies to have a positive effect on the market, Wilson said.
“This also fits with our view that the first half of the year was likely to be tougher for stocks as equity-negative policies could be implemented immediately before the equity-positive policies like before equity-positive policies like de-regulation, tax extensions and reduced government spending had time to play out,” he said.
Trump’s tariff plan also came into clearer focus in recent days, when the president said announced a 25% tariff on imports from Canada and Mexico. Both tariff plans have been delayed for at least a month, though the announcement seems to have brought concerns about higher inflation, higher rates, and lower growth back to the surface.
Tariffs on Canada and Mexico could lower earnings per share for S&P 500 companies by 2%-3%, according to an estimate from Goldman Sachs. The benchmark index could slide as much as 5% in the coming months, the bank predicted.
“From here, the market’s previous baseline view is likely to be tested the longer these tariffs stay on,” Wilson added in a separate research note on Monday.
Morgan Stanley, though, is still expecting stocks to be positive for the year, in-line with most forecasts on Wall Street. The bank is forecasting the S&P 500 to end the year at 6,500, implying 8% upside from current levels.
