Morgan Stanley's Chakrabortti Lowers S&P 500 Forecast to 1,300

By Michael Patterson

Aug. 25 (Bloomberg) -- Morgan Stanley cut its year-end forecast for the Standard & Poor's 500 Index by 7.1 percent to 1,300 on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.

Abhijit Chakrabortti, Morgan Stanley's chief global equity strategist, lowered his 2008 per-share operating profit estimate for S&P 500 companies to $78 from $86, according to a research note dated yesterday. He introduced a 2009 earnings projection of $84 a share.

Chakrabortti's new S&P 500 forecast ``is heavily dependent on lower headline inflation readings by year-end in line with our view of weak global growth conditions, a stronger dollar and downward pressure on oil and commodity prices,'' he wrote.

The New-York based strategist's estimate amounts to a 0.6 percent gain for the U.S. equity benchmark index from its close at 1,292.20 on Aug. 22. The prediction is 10 percent lower than the 1,446 average estimate of nine other Wall Street strategists who provide year-end forecasts to Bloomberg News.

``Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to very optimistic consensus expectations,'' Chakrabortti wrote in the note.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.