Tax reform’s ‘horrendous’ timing may lead to weaker market by mid-2018

The S&P 500 could hit 3,000 inside the first half of the year, according to Mike Wilson, chief U.S. equity strategist at Morgan Stanley. although he anticipates lower quality performance inside the second half of the year, in part coming from tax reform timing he described as “horrendous.”

“The Senate originally discussed moving in which, not doing in which until 2018. in which might have been smart. Of course, politics got inside the way along with we accelerated to 2018,” Wilson said on CNBC’s “Fast Money.” “in which’s like throwing gas on a burning fire, all in which does will be truncate the cycle.”

Wilson was one of Wall Street’s biggest bulls in 2017, along with the S&P has already topped his 2,750 base case for 2018. He sees the index topping out his bull case by mid-year. although the not bad news ends there.

“I think the market will be going to overshoot into the first half of the year. Our bull case will be 3,000, which we get inside the first half. inside the second half, the market realizes in which will be a lower quality earnings increase,” he said.

By no means will be Wilson predicting a recession. He argued operating margins will peak in which year in 2018, while earnings will continue to rise.

“A tax increase on earnings will be a very different type of increase on earnings than what we got the last two years, which was revenue growth along with market expansion,” he said. You’ll see earnings go up although operating margins come down. in which’s lower quality,” Wilson said.

Wilson believes tax reform has more or less been priced into the market already, which keeps him coming from getting too excited. although he doesn’t think ancillary effects, like wage hikes, increased investment along with bonuses have been priced in yet. in which, he said, could make 2018 very interesting for investors.

“You’ll make a lot of money picking stocks or sectors were investors have overestimated or perhaps underestimated the benefits of tax reform,” Wilson said.

Morgan Stanley’s favorite sectors for 2018 are energy, financials, industrials along with technology.

“Of the cyclicals, energy will be the best risk/reward, because in which actually lagged along with there’s a fundamental story there between supply along with demand along with earnings revisions,” Wilson added.

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