Stock Market: Dow falls 800 points on rate forecasts, recession fears

(AP) The worst may be yet to come for the stock market.

Wall Street's mini-rebound since mid-October has recovered some of the index's sharp losses from the first 10 months of the year. It closed Monday a shade below 4,000, up more than 10% since its bottom two months earlier.

Many analysts expect stocks to end 2023 at least around this range, if not a bit higher, after the Federal Reserve finally stops hiking interest rates in order to get high inflation under control. But before getting to that end point, much of Wall Street is also forecasting stock prices to fall sharply in the interim.

Consider Morgan Stanley, which says the S&P 500 could drop all the way to a range between 3,000 and 3,300 during the first three months of the new year. That would mean it loses up to a quarter of its value from Monday’s closing level. The low end of that range would also be 37.5% below the record set in early 2022.

The reason for the bank's pessimism is that its strategists forecast much weaker corporate profits than the rest of Wall Street. On the revenue side, businesses are feeling pressure as manufacturing and other areas of the economy are weakening. At the same time, Morgan Stanley says profits will get squeezed on the other end by higher wage costs after businesses had to give workers’ raises.

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