The Wall Street Journal Morgan Stanley: Here’s Where We Think Stocks Go in 2011

Morgan Stanley’s new top U.S. equity strategist Adam Parker — former head of research at Sanford C. Bernstein — is out with his opening salvo of notes on the markets for the storied Wall Street firm.

Parker pegs his 2011 target for the S&P at 1238, roughly 2% lower than the benchmark index’s level today.
Parker’s restrained view on stocks stands in opposition to more bullish calls from some of his counterparts on the street. Goldman’s 2011 target is 1450. Deutsche Bank — the most bullish we’ve seen — is 1550. J.P. Morgan, Barclays and BofA are all 1400 or higher. Credit Suisse’s Douglas Cliggott, who participated in a MarketBeat Q&A recently, is more dour on the market’s prospects. He expects that 2011 will see the S&P end at 1250, about the same neighborhood as Parker.

Parker’s read on the S&P stems from a somewhat more subdued view on earnings than the norm. He expects that 2011 will see the S&P bring in roughly $93 in earnings, that’s below the roughly $96 consensus expectations for earnings by the end of 2011. Looking further out — to 2012 — Parker sees earnings a lot less optimistically than most of the stock prognosticators, expecting $98 versus the consensus $109.51 that Thomson Reuters currently cites.
Parker writes:

While EPS growth is likely to occur, the consensus bottom-up expectations appear to be too optimistic. We expect the growth rate for EPS in 2012 to be well below the growth rate in 2011 and below consensus. Primarily, our cautious view on earnings, beginning in the second half of 2011, stems from our belief that incremental margins for most sectors will be below what is embedded in consensus.