Morgan Stanley: 2017 Will Be A Year Of Growth – ValueWalk

It’s that time of the year again. Analysts are starting to put out their projections for 2017 and so far, the consensus seems to be that economic growth will return next year, along with inflation. What’s more, the much reported ‘earnings recession,’ which was supposed to unfold last year as a precursor to a recession, now appears to be off the table.

Morgan Stanley’s Chief Cross-Asset Strategist Andrew Sheets is optimistic about global growth for 2017 and expects six rate hikes from the Fed by year-end 2018, 3.4% global GDP growth in 2017 and the 10-year Treasury to be at 2.5% by year-end 2017. Here are the highlights of Andrew Sheets’ 2017 Outlook presentation, which was sent out to clients at the beginning of this week.

Here are Morgan’s six key expectations for 2017.

Morgan Stanley: 2017 Will Be A Year Of Growth

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Morgan Stanley: 2017 Will Be A Year Of Growth

Due to brewing economic uncertainty, coupled with the prospect of fiscal stimulus, Morgan’s analysts are upping their best-case growth target, but also lowering their worst-case growth prediction. These changes have had the effect of fattening tails.

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Reflation is expected to persist.

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While the stimulus is expected to continue to grow throughout 2017 and 2018.

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When it comes to earnings. Morgan’s analysts believe that global earnings troughed in 2016 and it certainly looks as if this is the case according to the chart below.

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After stagnating earnings this year, earnings growth is predicted to return with a vengeance next year and during 2018. Morgan’s analysts are predicting 7% earnings growth for the S&P 500 during 2017, rising to around 10% for 2018.

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With high single-digit earnings growth expected for the S&P 500 next year, Morgan’s equity analysts are targeting a price of 2,300 for the index in the base case, 3.9% above current levels.

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