By Akane Otani 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 5, 2019).

Investors who have shrugged off tepid earnings growth this year have leaned on the argument that the majority of S&P 500 companies have wound up beating analysts' expectations. Morgan Stanley's wealth-management unit isn't sold on that argument.

The money manager found in an analysis of earnings that more than a third of S&P 500 companies have posted a year-over-year decline in earnings in 2019. The last times the share of companies posting contracting earnings was that high: 2009, 2008 and 2002, all periods when the broader economy, plus the stock market, were in decline.

Will stocks buck the trend this time around? Morgan Stanley Wealth Management isn't betting on it.

Both economic and earnings growth have "slowed materially this year and are apt to weigh on U.S. stocks," Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, wrote in a note Monday.

The Russell 2000, which tracks shares of smaller, more domestically focused companies, has continued to trail behind the S&P 500 this year -- potentially pointing to a lack of enthusiasm among investors about U.S. growth. And while Morgan Stanley Wealth Management believes populist movements around the world will help drive fiscal policy that will spur growth in places like Europe and Japan, it isn't as optimistic that the U.S. will get such a boost in 2020.

Given the dim outlook, it isn't surprising that the money manager has one of the lowest year-end targets on Wall Street. Other firms, including BMO Capital Markets, Citigroup and Bank of America, are expecting U.S. stocks will churn out gains in the single-digit percentage range next year. But Morgan Stanley Wealth Management sees the S&P 500 potentially ending 2020 at 3000, below where it is currently trading, and ending this year at 2750.

For that to happen, the S&P 500 would have to fall 12% from Wednesday's closing level between now and year-end -- something that seems unlikely at the moment, given the stock market's historical performance in December.

Write to Akane Otani at akane.otani@wsj.com

 

(END) Dow Jones Newswires

December 05, 2019 02:47 ET (07:47 GMT)

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