"Our 2024 and 2025 earnings growth forecasts assume healthy, mid-single-digit top-line growth in addition to margin expansion," Mike Wilson said.
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A top bear on Wall Street just threw in the towel and turned bullish after a big rally in the stock market.
Morgan Stanley's CIO Mike Wilson ditched his bearish call in a note on Sunday, increasing his 12-month S&P 500 price target by 20% to 5,400.
Wilson had previously held a 4,500 price target on the S&P 500. The new bullish forecast from Wilson would represent fresh record highs for the benchmark index, marking potential upside of about 2% from current levels.
"Our 2024 and 2025 earnings growth forecasts (8% and 13%, respectively) assume healthy, mid-single-digit top-line growth in addition to margin expansion in both years as positive operating leverage resumes," Wilson said.
Wilson's base-case S&P 500 price target of 5,400 is derived from a 19x price-to-earnings multiple on 12-month forward earnings per share estimate of $283 by June 2026.
Wilson said the stock market could surge an additional 20%, to 6,350 on the S&P 500 in his bull case scenario. That optimistic scenario would be driven by stronger earnings per share growth in the range of 11% to 15%, "driven by continued fiscal support and cyclical/structural drivers out to 2026 alongside multiple expansion to ~21x," Wilson explained.
Wilson first turned bearish on US stocks in 2021, correctly warning of a potential 20% decline in the S&P 500.
That decline quickly materialized just a few months later in 2022, but since then, the S&P 500 has rallied 52% from its October 2022 low, with Wilson fighting the rally throughout 2023 and the first few months of this year.
With Wilson now in the bullish camp on stocks, that leaves JPMorgan's Dubravko Lakos-Bujas and Marko Kolanovic as one of the few bears left on Wall Street. JPMorgan maintains a year-end price target of 4,200 for the S&P 500, representing potential downside of 21% from current levels.
