That’s the question on the lips of many stock market investors trying to decipher whether equities are set for one final rally before the year is out.

One big name on Wall Street, though, is betting against that happening.

In a Sunday note to clients, Mike Wilson, Morgan Stanley’s chief investment officer and chief U.S. equity strategist, doubled down on his year-end target of 3,900 points for the S&P 500.

Wilson—who was ranked No. 1 in last year’s Institutional Investor survey after correctly predicting the selloff in stocks—said in his note that while investor sentiment had recovered somewhat after September’s sell off, his team saw a fundamental setup that is “different than normal this year.”

Narrowing market breadth, falling earnings revisions, and dwindling consumer confidence were slashing the chances of a year-end uptick in valuations, he argued, noting that monetary and fiscal policy were “unlikely to provide relief” for traders as they could still tighten further.

“Bottom line, we think the S&P 500 price action into year-end is more likely to come down to where the average stock is trading rather than rallying to higher levels because breadth typically leads price,” Wilson wrote. “Based on our fundamental and technical analysis, we remain comfortable with our long-standing 3,900 year-end target for the S&P 500.”

The blue-chip index—a benchmark for America’s biggest publicly listed companies—is currently trading around 10% lower than its July peak, although it has still returned almost 8% since the beginning of the year.

To reach Wilson’s projected 3,900 points, the S&P 500 will have to shed a further 5% from current levels.

Deteriorating rally prospects

Wilson has been arguing over the last month that the chances of a fourth-quarter rally are deteriorating, despite bullishness lingering elsewhere on Wall Street.

He reiterated on Sunday that his observations of the market and economic backdrop “tell a different story than the consensus, which sees a rally into year-end.”

“Some of the more economic- and interest rate-sensitive sectors like autos, banks, transport, semiconductors, real estate and consumer durables [have been] underperforming significantly over the past three months,” he said. “More recently, many defensive sectors and stocks have started to outperform together with energy… We think this performance backdrop reflects a market that is incrementally more concerned about growth than higher interest rates and valuations per se.”

Wilson also noted that investors had been reacting more negatively to third-quarter corporate earnings than they had to the previous quarter’s earnings reports —stressing that this appeared to be the case whether earnings reports were good or bad.

“Most importantly for the headline S&P 500 index, most of the mega-cap leaders that have reported so far have not traded well post their [third quarter] results,” he said. “With this group unable to reverse the ongoing correction and keep the index above key technical levels, this is just another reason why a rally into year-end looks more unlikely to us.”

Long-time bear

Wilson, one of Wall Street’s most prominent bears, has long been making gloomy predictions about U.S. stocks, warning investors in May not to be fooled by the rally that was unfolding across the S&P 500 at the time.

However, his warnings have not always come to fruition.

Earlier this year, he predicted that a 20% downturn was imminent for U.S. stocks—and has since reflected on why his projections missed the mark.

“We were wrong,” he conceded in a note to clients over the summer. “2023 has been a story of higher valuations amid falling inflation and cost-cutting.”

Wilson isn’t a lone voice when it comes to taking a warier approach to stocks in recent months, however.

Earlier this month, JPMorgan’s top strategist warned stocks could be about to nosedive 20%, saying he was “not sure how we’re going to avoid” a recession.

Some calculations suggest that the S&P 500 is headed below 3,000 points—which would be a decline of at least 27% from current levels.

Wall Street bulls Goldman Sachs and Citigroup, meanwhile, have lowered their year-end price targets for the S&P 500 index.