Morgan Stanley strategist Michael Wilson expects a stock-market rally in 2024 following a challenging 2023 as the US economy suffers through an earnings recession.

“As bearish as we are on earnings in the near-term, we actually are probably more bullish than most in 2024 because we think we are in this boom-bust-boom environment,” Wilson said in an interview on Bloomberg TV. “If you agree with our earnings call next year then you almost have to agree with our earnings call this year and the market won’t look through that.”

His take elaborated on points he made in a note to clients on Monday: Namely, that investors are failing to price in a backdrop of weakening economic data and earnings for 2023. Recent optimism around a less hawkish Federal Reserve, China reopening and a weaker dollar is already priced into share prices, he wrote.

“The question is when will equity indices price the current weakness in the leading data and the eventual weakness in the hard data?,” wrote Wilson, who was the top-ranked strategist in last year’s Institutional Investor survey. “We think it’s this calendar quarter.”

Wilson’s view serves as a warning sign after the S&P 500 Index rose 12% since mid-October in its recovery from last year’s bear market. The gauge looks expensive compared with average historical levels given that earnings estimates have been falling for months.

Earnings are also a concern for JPMorgan Chase & Co. strategist Mislav Matejka, who notes that the environment will be particularly challenging this year, with corporate pricing power starting to reverse, just as margins are near record-high in the US and in Europe.

“Even if companies do not disappoint for the fourth quarter 2022, we do not believe earnings per share upgrades will come in the first half of this year,” Matejka wrote in a note.

To Bank of America Corp. strategists including Savita Subramanian, early results from fourth-quarter earnings season show that S&P 500 companies are on track to miss expectations by 1% after analysts lowered their estimates.