Bear Case: Bank of America, Morgan Stanley & Wells Fargo Predict Stock Plunge

Bear Case: Bank of America, Morgan Stanley & Wells Fargo Predict Stock Plunge


Morgan stanley, Wells Fargo, Bank of America, bear case

Today, three banks offered their take on the possibility of a recession and a stock market drawdown. In 2022, it was the popular opinion of most economists and funds that the US was soon to enter a recession. It’s now May of 2023, and some hedge funds haven’t changed their opinion despite a powerful start to the year. The three banks predicting a possible recession and a market drawdown: Bank of America, Morgan Stanley, & Wells Fargo. Let’s dig into their track record and their current prediction to see their reasoning and their recent predictions.

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A team of Bank of America’s analysts have said they expect the “sizzling rally” in 2023 to come to an abrupt halt. (The S&P 500 is currently up ~7% — sizzling may be a strong word here.) Specifically, analysts expect a “full blown recession” in the 3rd quarter of 2023. 

Bank of America’s last popular macro prediction: In June of 2022, with the S&P 500 trading under 4,000, the same analysts said that a year-end target of 3,600 was “their bull case” — that means in the most bullish scenario, the S&P 500 would end the year at 3,600, and in any other scenario, it would fall significantly lower than that. 

Unfortunately for Bank of America, this was near the bottom of the S&P 500’s range. Their case at the time was similar — a recession would come, wiping the floor with the stock market.

Verdict: The recession never came, and the S&P ultimately chopped around before ending 2022 significantly higher than even the most bullish of Bank of America’s cases.


Morgan Stanley essentially believes that the stock market can only have two accepted outcomes: Either, the economy experiences durable growth causing the Fed to stay “higher for longer” (thus hurting the stock market) or a recession hurts the economy and the stock market to such a degree that the Fed feels their job is done and begins cutting rates. According to Morgan Stanley, neither outcome will net smooth sailing for the stock market, and investors are “too complacent” with current conditions.

Morgan Stanley’s last popular macro prediction: Mike Wilson of Morgan Stanley was largely right in 2022, predicting the fall of the stock market far earlier than Bank of America or really any other strategist. This was at a time where analysts were largely giving 5,000+ S&P 500 target ranges. Mike Wilson was right — and more importantly, he was right before most other people were right. Additionally, Morgan Stanley’s 2022 price target for the S&P 500 was 3,900 — the S&P 500 ended within 2% of this prediction.

That said, in 2023, Wilson has largely remained bearish and encouraged investors not to partake in the market in 2023. This meant missing out on the best January performance for the market in 4 years.

Verdict: While investors would have missed out on a great January, had they heeded Mike Wilson’s advice, they would have left the market with the S&P at 4,700 — far above where it is now, or where it was in January. Mike Wilson and Morgan Stanley receive bonus points for being right first — after all, it doesn’t really pay to become bearish after the market has already dropped into bear market territory. 

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Wells Fargo’s last popular macro prediction: Wells predicted that the S&P 500 would end 2022 at 4,300.

Verdict: It didn’t do that. Wells wasn’t as vocal with this prediction or their reasoning as many other firms were, but this time, they’re giving a big amount of detail behind what they believe could be an upcoming correction.

Wells Fargo has an interesting, very nuanced take on their call. Specifically, Wells Fargo expects that the S&P 500 is currently “topping out” and will fail to surpass 4,200 before experiencing a 10% correction down to the 3,700 level. While the Fed was still front-and-center in Wells’ reasoning, Wells analysts cited a few reasons that some of the above analysts haven’t:

  • The debt ceiling
  • Student loan forgiveness
  • Possible credit crunch
  • The economics of shorting (the base amount for rebates has risen dramatically from 0.8% last year to 5.1% today — making short bets more appetizing to institutions).

However, Wells Fargo analysts did something none of the above analysts did: They offered a caveat. An escape route for the market. Wells analysts said that if the US can, for lack of a better phrase, get its act together, a recession and a drawdown could be avoided. According to Wells, that would mean approving student loan debt forgiveness, a possible Fed rate cut or even a dovish pause, and most notably: AI. 

Many economists believe that while AI will take jobs in nearly every industry, it will lead to increased cost cutting, better margins for businesses, and increased productivity. Analysts at Goldman Sachs (a fund that doesn’t believe the US economy is heading for a recession) believe that hundreds of millions of jobs will be wiped out due to AI — but that global GDP will see a 7% increase.

If AI continues to see widespread adoption and consistent, steady improvement, this could help abate pressures in inflation — particularly in wage growth and employment — while buoying production and GDP. 


  • Bank of America, Morgan Stanley, and Wells Fargo all think stocks are about to drop
  • Those familiar with the “pain trade” may view this as bullish
  • Those who follow the advice of fund managers may view this as bearish
  • Morgan Stanley was likely the most accurate and earliest big-name firm of 2022 when it came to calling the drop in the S&P, and when it came to predicting where it would land.
  • Bank of America and Wells Fargo were both generally incorrect in their 2022 predictions.
  • Bank of America’s prediction for 2023 largely matches Morgan Stanley’s — a recession is coming and a drawdown will follow based on a weakening economy and Fed pressure — though Bank of America’s prediction comes with an oddly specific third quarter specification to their recession prediction. Historically, highly-specific timing predictions like this aren’t effective.
  • Wells Fargo’s prediction for 2023 is significantly less black and white, predicting a 10% drawdown and a specific market top-range — while simultaneously offering detail about exactly what actions could negate a potential drawdown.
  • At the time of writing, the S&P 500 was trading at 4,106, down more than half a percent at the time of writing — likely in relation to these calls.
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