Morgan Stanley's Mike Wilson says US stocks could crash another 20% as the risks of a recession rise

• Morgan Stanley's Mike Wilson has said the risks of a recession are rising and stocks could fall another 20% if growth goes into reverse.
• The chief US equity strategist said that even if the economy avoids recession, stocks still likely have a way still to fall.

Morgan Stanley's chief US equity strategist has said the risks of a recession are rising and that stocks could tumble another 20% if economic growth goes into reverse.

"At this point, a recession is no longer just a tail risk given the Fed's predicament with inflation," Mike Wilson, who was ahead of much of Wall Street in predicting a sharp drop in stocks, said in a note Tuesday.

Wilson said Morgan Stanley's economists now put the chance of a recession over the next year at 35%, up from 20% previously. But he said he personally thinks the chances are a bit higher.

The strategist said that although stocks have fallen sharply, they are not yet at levels reflecting a recession.

He said the S&P 500 would likely tumble to 3,000 if the US economy started to go backwards — roughly 20% lower than Tuesday's price.

But Wilson said he sees more downside for equities even if the US economy manages to avoid a recession.

He said the $4, the US benchmark index, is likely to fall by another 7% to 10% — to around 3,400 to 3,500 from roughly 3,770 on Tuesday — as company earnings suffer under the weight of inflation.

The index has already tumbled more than 20% from its recent high in early January, as the Federal Reserve hikes interest rates to tame the $4.

"We recognize a lot of pain has already been inflicted during this bear market. Nevertheless, we can't yet get bullish," Wilson said in the note.

"We see a pretty poor risk reward over the next 3-6 months with recession risk rising in the face of very stubborn inflation readings."

Wall Street analysts have lowered their expectations for US growth following the Fed's $4 last Wednesday, which was the biggest increase since 1994.

In recent days, Goldman Sachs said the risk of a recession within the next year $4. Nomura said the US would now enter $4 before 2022 is out, and Deutsche Bank said growth would now $4 than it previously expected.

Nonetheless, Wilson said many analysts still expect company earnings to be too strong, given issues including high inflation and slowing consumer spending.

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