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Morgan Stanley lowered its

S&P 500

earnings estimates for 2002 and 2003 on Monday morning in the most recent acknowledgment of a weak economic recovery.

The bank cut its earnings predictions to $47.50 from $50 for 2002 and to $55 from $58 for 2003. It also cut its 12-month price target for the S&P 500 to the 1050 range from an earlier forecast of 1200.

"The air pocket hit by the market and the economy in early summer has resulted in worse-than-expected results in several groups, notably tech hardware and diversified financials," said Steven Galbraith, Morgan Stanley's domestic equity strategist.

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Morgan Stanley had maintained a $50 profit estimate for the S&P 500 in 2002 since October of 2001. The bank said earnings had been tracking pretty close to its original forecast until recently.

Galbraith restored an underweight rating on financials, noting the group has outperformed the S&P 500 this year and arguing it has likely seen the benefit of a steep yield curve and accommodative



The equity strategist also said he no longer favors small-cap stocks over large-cap stocks because the anomolies between the two have worked their way through the market.