Morgan Stanley predicted a stock market crash

Black market bear on financial chart background

Morgan Stanley has warned that the chances of a major correction in the stock market are now greater than ever.

It was forecasted by the bank that the S&P 500 index would decrease by 10% by the end of the year.

Value stocks are expected to have a greater potential for growth than growth stocks.

On Monday, the S&P 500 dropped to nearly two-week lows below 4,340, representing a decline of 1.6% since the beginning of March and 2.6% from its mid-June highs.

Mike Wilson, Chief Investment Officer of Morgan Stanley, has predicted that the S&P 500 broad market index will drop by 10% to 900 points by the end of the year, according to RBC citing Bloomberg.

The strategist's forecast is backed up by a decrease in earnings per share for companies included in the S&P 500 index calculation, which is estimated to be $185, as opposed to the average forecast of $220.

Wilson stated that the chances of a major correction are now more significant than ever. He believes that value stocks will do better than growth stocks as investors move towards defensive industries.

Goldman Sachs forecasted that if a recession were to occur, the S&P 500 would experience a 22% decrease.

A survey conducted by the Wall Street Journal has revealed that the chances of a recession occurring in the United States in the next year have reached an all-time high of 44%. This is the highest probability of a recession since 2007, just before the start of the financial crisis.

Investors have once again begun to purchase safe bonds and sell stocks, as the anticipation of higher interest rates increases and weak economic data heightens fears that the expansive policies of central banks will drive the economy into a recession, as Bloomberg reported earlier.