Tags: Parker | stocks | major | drop

Morgan Stanley’s Parker: Stocks Poised for Major Drop

By Dan Weil   |   Sunday, 30 Sep 2012 02:45 PM

Investors have overdone it in their enthusiasm for stocks, and the next big move for the market will be down, says Adam Parker, chief equities strategist at Morgan Stanley.

Much of the problem is excessive optimism toward Europe in the wake of steps taken by the eurozone to restore stability, Parker told Yahoo.

"Fundamentals of the [European] economy remain weak," he said. "What helped people feel more optimistic [this year] was removal of some of the real tail risk events that began to surface last year.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Eurozone GDP shrank 0.2 percent in the second quarter. Standard & Poor’s expects a contraction of 0.8 percent for the year as a whole, and Morgan Stanley forecasts zero growth for next year.

European growth is important for the U.S. economy, as about 20 percent of our exports go there.

Moreover, while the dollar has dropped against the euro in recent weeks, if that moves reverses, U.S. exports will suffer and so will U.S. corporate earnings, Parker said.

"We see the next double-digit move in the equity market as down.”

The S&P 500 could fall as much as 16 percent to 1,214 by year-end, he said.

Not everyone is so bearish. Bank of America expects the S&P 500 to gain 11 percent to 1,600 next year, though it expects little change for the rest of 2012.

Earnings growth of 7 percent will fuel the gain, according to a BofA report obtained by CNBC.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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