Wilson believes an earnings downturn doesn't necessarily require an economic recession to play out.
The strategist pointed to companies' operating leverage which has now turned negative, meaning corporations may not be generating enough revenue to cover rising costs. "We believe it's underappreciated how significant the negative operating leverage is going to get before this earnings recession is over," Wilson said. "It doesn't appear that the earnings picture is bottoming as many investors were starting to think a few months ago.
" The S & P 500 is still up more than 3% this year despite the unfolding banking crisis and weaker credit conditions, which has helped fuel recession fears. Given such a negative outlook, Morgan Stanley looked for defensive stocks to own that should fare better in a bear market. The firm added Colgate-Palmolive and Walmart to its "Fresh Money Buy List" to position more defensively. Shares of Colgate-Palmolive have fallen nearly 7% this year, while Walmart is about flat.
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