investors still not pricing in reality morgan stanleys wilson shrinking margins are a downside risk to stockmarket returns as hotterthanexpected inflation readings and whats expected to be another outsize interestrate hike bring mounting uncertainties to earnings according to goldman sachs strategists last weeks hot inflation print stoked concerns about the outlook for equity valuations and profitability wrote strategists led by david kostin chief us equity strategist the analysts expect the sp 500s spx net profit margins will contract by 25 bp basis points in 2023 to 12 alongside positive but decelerating economic growth they said in a sept 16 note the consensus expects the indexs net profit margins to climb to a new high of 128 in 2023 according to factset data but goldman strategists believe these forecasts are too optimistic and will be cut the sp 500 ended last week below the 3900 level which was viewed as an important area of technical support and could trigger a deeper slide to the indexs 2022 low at 366677 set on june 16 the sp 500 suffered a 48 weekly fall while the dow jones industrial average logged a 41 drop and the nasdaq composite declined 55 see some twisted logic about valuation multiples stockmarket investors appear complacent as rates rise warns morgan stanley meanwhile morgan stanleys michael wilson one of the wall streets most vocal bears who correctly predicted this years stock market selloff suggested that reality has not been priced in yet as investors may face a volatile path in the absence of an event to clear the decks the sp 500 rallied off the june lows and reached a high of 4305 in midaugust but then the retreated back below its 50day moving average see chart below according to strategists led by wilson it is not a good sign we are oversold again and that means bear market rallies can continue to occur in the absence of a market clearing event that forces capitulatory behavior wrote wilson in a monday note we remain bearish both fundamentally and technically on a 3month basis more neutral on a 912 month basis and open minded on a daytoday basis with that backdrop we continue to recommend owning more defensively oriented companies with earnings stability and high operational efficiency he added seestocks may be headed for more pain as second half of september is historically very bearish us stocks were struggling for direction on monday as investors await the central banks meeting that kicks off tuesday markets are pricing in a hike of 75 basis points with futures showing a 18 chance of a full percentage point increase according to cmes fedwatch tool the federal reserve is expected to make its decision on wednesday at 2 pm eastern followed by a press conference from chair powell the dow jones industrial average and the sp 500 were each flat in late afternoon trading on monday while the nasdaq composite gained 1