Morgan Stanley's Mike Wilson currently has one of the loftiest stock market targets on Wall Street, but he also sees a possible bear market on the horizon.
Wilson, Morgan's chief equity strategist, said he expects the S&P 500 to reach 2,700 in the first part of next year, if things unfold as he forecasts. He doesn't see a big sell off until after his target is reached, but once that happens it could mean a 20 percent decline.
In the meantime, stocks are benefiting from strong earnings, a still-easy Fed and the promise of economic stimulus.
Earnings for the third quarter should be good and could also give the market a bigger boost, especially if the investors who have been waiting for a pullback all summer put some of their sidelined cash into the market, Wilson said in an earlier interview with CNBC.com. "We've been looking for 2,550, 2,575 on the S&P before earnings season," he said.
Wilson says there is a risk of a slight stumble this fall — possibly a 5 to 6 percent pullback — before the S&P resumes its climb toward his 2,700 target. He said that could come in late October or early November.
Debate on tax reform could be a catalyst for a late-fall selloff, particularly if Congress does not look like it is in agreement on main elements. A blue print for a tax plan, created by GOP Congressional leadership and the White House, was unveiled Wednesday. The plan showed a decrease in the seven individual tax rates to just three, and a reduced corporate tax rate of 20 percent. But there were many details still missing.
Stocks should resume their climb if there is a fall sell off, and Wilson says the S&P 500 could ultimately reach his 2,700 target early next year, especially if stimulus and tax reform are approved. Wilson's target is the highest among strategists in the CNBC strategists survey.
"We'll get to 2,700 first, and then the timing of the beginning of the cyclical bear could be imminent. It could be any time after that. It could be as early as the second half of next year," he said in the telephone interview.
Reference: CNBC
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