Morgan Stanley warns, S&P 500 could drop 26% in a matter of months

Posted at 4:07 PM, Feb 22, 2023

Morgan Stanley released a forecast on its expectations for one of the most popular indexes in the U.S. calling its stocks' risk-reward "extremely poor," according to reports.

Bloomberg reported that a strategist predicted the index would drop as much as 26% at some point in the coming weeks and months.

According to the report, signs of the possible drop have been seen in high-cost U.S. equities.

As the U.S. Federal Reserve remains aggressive in its method for fighting inflation, analysts and investors are still unclear if the country will be able to avoid a recession, or how deep of an economic dip the country will find itself in.

Stocks have been at their most expensive cost since 2007, based on a measure of equity risk premium, and that is echoed by analysts on Wall Street who say a recovery in the stock market appears to have gone too far.

Morgan Stanley reportedthat the S&P 500 index saw a decline of 2% on Tuesday, but was up 4.1% year-to-date.

Michael Mauboussin, a head analyst with the bank holding company said that companies around the globe have "shifted" their investments from tangible to intangible assets like intellectual property.

Mauboussin believes this is part of why the S&P 500 may have earnings that are "understated."