Not everyone is on board with the idea that the bear market in US equities is “officially over.”

“We respectfully disagree,” Morgan Stanley’s Mike Wilson wrote Monday, in a piece called (aptly) “The Bear Is Still Alive.”

He conceded (or maybe just “noted” is better) that sentiment and positioning are now both bullish. He called that a “major reversal” from the beginning of the year, and suggested the rally might’ve begun to feed on itself courtesy of the psychology associated with the arbitrary 20% threshold. Pundits and market participants, Wilson said, “are emboldened.”

As usual, his analysis was trenchant, which naturally makes it compelling. But that doesn’t necessarily mean it’s going to pan out. We are, after all, talking about something (equity prices) which, while tethered to fundamentals, aren’t strictly beholden to them. The S&P is, in part anyway, a barometer of greed and despair. Currently, the needle is moving back towards “greed.”

Wilson reiterated familiar warnings around the outlook for earnings. He said investors are are likely “making two key assumptions that may be at risk.” First, some market participants seem content in the notion that the drag from Fed tightening is now in the rearview. Second, it’s possible investors believe that consumer cyclicals, tech and communications services, have already seen the worst, and will enjoy “accelerating earnings growth even as other parts of the market suffer.”

Those assumptions, Wilson suggested, are predicated on constructive commentary from the C-suite and A.I.-linked optimism. He doubts the latter will be an across-the-board game-changer in the near-term (i.e., this cycle). “Individual stocks will undoubtedly deliver accelerating growth from spending on A.I. this year [but] we do not think it will be enough to change the trajectory of the overall cyclical earnings trend in a meaningful way,” he wrote. “Instead, it may pressure margins further for companies that decide to invest in A.I. despite flat or decelerating top-line growth in the near-term.”

He pointed to challenging seasonality for earnings revisions (breadth tends to trend lower after July) and noted that looking back seven decades, earnings recessions “often bottomed very close to -16% YoY” which, as it happens, is “the exact decline” Morgan Stanley is currently forecasting for 2023 based on their models.

History, Wilson said, isn’t on the side of those hoping that the current (very shallow) earnings recession is set to reverse imminently.

You might fairly ask whether Wilson’s base case index-level EPS forecast is still realistic. $185 is quite low and while we obviously don’t know what Q2 earnings are just yet, the year is halfway over. He didn’t skirt the issue. “The main piece of pushback we receive is that our base case earnings estimate is likely far too low and unattainable given where we are in the year,” Wilson said.

He offered a compelling rejoinder. $185 wouldn’t even constitute a decline to the long-term trend line, a testament to just how pronounced the pandemic-era “over”-earning phenomenon really was.

Besides, Morgan Stanley’s forecasts are hardly apocalyptic looking out to 2024 and beyond. Note the yellow projection in the figure.

As for whether there’s enough time for Wilson’s forecast to realize, the answer is generally “Yes.” The bank is looking for 16% downside to consensus over seven months. “The last three earnings recessions have seen even larger downward estimate revisions over an equivalent time period,” Wilson wrote.

There was more. A lot more. The depth of Wilson’s analysis in Monday’s note was impressive coming as it did just seven days after he released a 72-page mid-year review. Right or not, no one can say Wilson is short on arguments to back up his case.

I should note (as I did last week), that Morgan Stanley expects the situation to improve markedly once the earnings recession is truly behind us (with the emphasis to denote that Wilson thinks the storm isn’t over). “As we head into 2024, we see the market processing a much healthier earnings backdrop and note that our 2024 EPS growth estimate of +23% YoY is also in line with the historical analog for earnings one year after trough growth in earnings recessions,” he said.

Wilson’s latest comes just days after Goldman’s David Kostin lifted his year-end S&P forecast to 4,500. BofA’s Savita Subramanian, while certainly not calling for much in the way of upside for the cap-weighted benchmark through year-end, last week sketched “a broader bull case for stocks” after the S&P “officially” entered a bull market.