The Morgan Stanley strategist who called the bear market says the S&P could fall to the low 3,000s

Published Mon, Sep 26 20229:22 AM EDTUpdated Mon, Sep 26 20228:46 PM EDT

The S & P 500 could fall to the low 3,000 range, as an earnings recession appears "unavoidable," but the market may then not stay down for long, said Mike Wilson, Morgan Stanley's chief U.S. equity strategist, who was correctly bearish going into this tough year for markets. "We're in a cyclical downturn for growth, and that's the fire-and-ice narrative to a tee, right — the tightening policy and the slowing growth," he said Monday on CNBC's " Squawk Box ." "And we're just not finished yet, in our estimation." Market observers have questioned where the "bottom" of the market will be now that the Federal Reserve appears to be willing to tolerate a recession in order to win its battle against inflation. Wilson's bear case for the S & P 500 is around 3,000, with his base case at 3,400. The strategist said he sees potential for both cases with the soft landing for earnings now less likely. These estimates represent a drop of about 8% to 18% from the S & P 500's current level. The rapid move in rates was another bad sign in the strategist's view, with the one-year Treasury bill yield surpassing 4% on Monday. Wilson said this could be an unusual moment in the market. The employment picture can create confusion about the state of the economy, as the labor shortage keeps wages up, which isn't typically seen during recessionary periods. Wilson also noted there is "so much money sloshing around" compared with other times of economic downswing, but he would not use that to make bets on where the market goes. He said efforts to curb inflation are the "medicine" to get the country out of the "debt trap" it has been trying to free itself from since the 2008 recession. The market needs time to readjust to the headwinds as the Fed attempts to control inflation through rate hikes, he said. Wilson said we are nearing a turning point and he is getting ready to spring into action once the market hits the firm's target. The S & P 500 is off 23% from its high and near its lowest levels in two years. "We're getting close to the end," he said. "The damage has been done. ... Now, we're actually starting to get ready to be more aggressive. It's just not time yet, in our view, and to be premature can be quite costly."