Despite the recent rally in tech stocks, Morgan Stanley’s Mike Wilson stuck to his bearish call for a tactical adjustment. “Hotter but shorter cycles persist – we continue to forecast an earnings recession this year, which we don’t think is priced in,” Wilson, the bank’s head of U.S. equity strategy, said in a note. “As the cyclical bear market ends, we still expect a tactical adjustment.” The widely followed strategist stuck to his base case forecast for the S&P 500 to close at 3,900 in 2023, up from Friday’s close of 4,282.37. About 9% lower. Wilson’s forecast was well below Wall Street strategists’ average year-end forecast of 4,157, according to CNBC Pro’s Market Strategists Survey, which aggregates forecasts of the top 15 strategists. .SPX YTD Peak S&P 500 Wilson, who has been one of Wall Street’s biggest shorts over the past year, has recently been warning that it’s hard to justify high valuations based on the earnings outlook. The S&P 500 is up more than 2% this month alone, pushing its 2023 gain to nearly 12%. The tech-heavy Nasdaq Composite just posted its sixth straight weekly gain, a streak not seen since 2020, and is up 27% so far this year. Wilson said the market’s solid performance so far can be attributed to several factors, including expectations of a Fed turnaround, continued improvement in liquidity, outperformance by a handful of large-cap stocks and a belief that the worst of the earnings recession is over. “We don’t think the emergence of these factors will negate our tactical downside forecast, as we see significant headwinds to earnings in 2023,” Wilson said. “At current valuation levels, we think equities optimistically reflect Fed rate cuts in 2023 and sustained growth. We think the likelihood of these outcomes occurring together is low.” The strategist said he advised investors to focus on defensive stocks. characteristics, operating efficiency, and earnings stability. — CNBC’s Michael Bloom contributed reporting.