Winter of 'disconnect': Morgan Stanley's Mike Wilson braces for more than 20% stock drop

Morgan Stanley's Mike Wilson is telling investors to brace for a wintertime downdraft.

He warns S&P 500 is susceptible to a 23% driblet — bringing it to 3,000.

"Even though a bulk of organization clients deliberation we're astir apt going to beryllium successful a recession, they don't look to beryllium acrophobic of it," the firm's CIO and main U.S. equity strategist told CNBC's "Fast Money" connected Tuesday. "That's conscionable a large disconnect."

Wilson expects net season, which kicks disconnected with financials connected Friday, volition jolt the marketplace by coming successful sharply beneath expectations. He believes investors volition beryllium amazed by however dramatically net request to adjust.

"That's different country investors are being a small spot complacent," helium said. "Costs are expanding faster than nett revenues."

Wilson contends quarterly results volition apt footwear disconnected a 2023 reset connected Wall Street.

"The full-year estimation has got to travel down," helium added. "Negative operating leverage is truly starting to travel done to the income connection from the equilibrium sheet... This is simply a precise underappreciated improvement during Covid. We over-earned during the pandemic due to the fact that determination was affirmative operating leverage."

And, investors could get deed with a treble whammy owed to the timing of the adjacent Federal Reserve involvement complaint determination connected Feb. 1. Wilson anticipates the Fed won't appease investors by signaling plans to pivot.

"Our telephone is predicated mostly connected net and the information that the Fed astir apt isn't going to beryllium arsenic reactive to a slowdown arsenic they person been historically," Wilson said. "They're not going to beryllium slashing rates into a maturation slowdown."

His S&P 500 year-end price people is 3,900, which is second lowest connected the Street. With conscionable six trading days successful the books, the scale is up 2% truthful acold this year and much than 12% since the Oct. 13 low.

"When we really speech to people, they speech a bearish crippled astir the archetypal half. But they're not truly either positioned for it oregon they don't truly deliberation that it's going to beryllium that bad," said Wilson, who has been defensively positioned since past year.

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