Morgan Stanley predicts earnings drop and potential end to stock rally.

Morgan Stanley predicts a "meaningful" earnings recession this year, with earnings declining 16% by the end of the year before experiencing a "sharp rebound" in 2024. The firm sees the S&P 500 falling to 3,900 by year end, and the S&P 500 will produce earnings per share of $185. Morgan Stanley's 2023 S&P 500 earnings per share target is 17% below market consensus. The equities team believes a cyclical bear market is coming and recommends defensive positioning in sectors and industry groups with reliable track records of outperformance late in the cycle/during earnings recessions.