Morgan Stanley chief investment officer Mike Wilson was once the only strategist on Wall Street bearish enough to predict the S&P 500 would fall to 3,900 by the end of the year. Now as the S&P 500 lingers around 3,950 and Wilson’s predictions become a reality, the veteran investor is predicting things will fall by a lot more.

Wilson, who also serves as Morgan Stanley’s chief U.S. equity strategist, is warning investors that U.S. companies will unleash a trove of downward earning revisions in the first quarter of next year which will send stocks down another 24% in early 2023.

“You should expect an S&P between 3,000 and 3,300 sometime in probably the first four months of the year,” Wilson said on CNBC’s Fast Money on Tuesday evening. “That’s when we think the deacceleration on the revisions on the earnings side will kind of reach its crescendo.”

Wilson’s prediction of the S&P 500 at around 3,000 would imply the benchmark index shedding a quarter of its value from its close on Tuesday evening at 3,957.62.  “The bear market is not over,” Wilson said, adding, “We’ve got significantly lower lows if our earnings forecast is correct.”

While most other strategists struggled to predict the 17% fall in the S&P 500 over the last year, Wilson—who ranked No. 1 stock strategist in the latest Institutional Investor survey — said pricing the first half of this year had been relatively simple—he just had to be bearish and hold his position. The average target of CNBC’s Market Strategist Survey halfway through the year in June 2022 had strategists predicting the S&P 500 would increase from 3,750 to an average of 4,684. Wilson held the most pessimistic outlook at the time with his 3,900 prediction.

Over the next year, Morgan Stanley predicts the stock market to dip harshly in the first months of next year, before rebounding back to around 3,900 by year-end 2023.

A short rally and then a big drop

Wilson says that it is not about year-end predictions, but rather the wild short-term swings taken to get there. “I mean nobody cares about what’s going to happen in 12 months. They need to deal with the next three to six months. That’s where we actually think there’s significant downside,” Wilson predicts.

As companies report lower earnings in the first quarter of the year, Morgan Stanley predicts skittish investors will flee from stocks regardless of their sector.  

“Most of the damage will happen in these bigger companies — not just tech by the way. It could be consumer. It could be industrial,” Wilson said. “When those stocks had a tough time in October, the money went into these other areas. So, part of that rally has been driven just by repositioning from the money moving.”

But luckily for bullish investors, Wilson does not predict a crash in prices until next year. “This is not a time to sell everything and run for the hills because that’s probably not until the earnings come down in January [and] February,” he said.

Wilson previously predicted that S&P 500 could reach 4,150 by the end of the year in a short-lived rally that will drop off into the new year. Speaking on Thoughts on the Market podcast in early November, Wilson said, “We’ve now reached a point where both bond and stock markets may be pricing in too much hawkishness…This could provide some relief to stocks in the short term.”

As the S&P 500 lingers around the 4,000 mark, this prediction is so far on the right track. “It’s our job to call these tactical rallies,” Wilson said on Tuesday. “We’ve got this one right. I still think this tactical rally has legs into year-end.”

But after we ring in the new year and earnings reports send equities to “lower lows” in the first quarter of 2023, then investors are finally allowed some optimism, Wilson says. “You’re going to make a new low sometime in the first quarter, and that will be a terrific buying opportunity,” Wilson told CNBC in another interview last week, adding, “It’s going to be a wild ride.”

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