Morgan Stanley strategist Mike Wilson sees an eventual earnings recovery for U.S. equities in 2024 — but he sees the S & P 500 rising only to 4,500 over the next 12 months. That prediction suggests less than 2% upside from Friday’s close. Wilson, the firm’s chief U.S. equity strategist, noted that while the S & P 500 has gained about 15% year to date, the narrow rally has been skewed to the Magnificent Seven. This under-the-surface earnings weakness is forecast to continue into early 2024 before a recovery, he said in a Monday note. “Near-term uncertainty should give way to an earnings recovery as we progress through next year,” Wilson said. .SPX YTD mountain S & P 500 in 2023 The strategist forecasts earnings growing 7% year over year in 2024, as well as 4% to 5% top-line growth and “modest” margin expansion as pressure from high labor costs begins to soften. In the meantime, earnings will remain challenged in the near term due to macro risks, said Wilson. Corporate commentary has been cautious, and consumer confidence data has ticked down due to rising geopolitical and cyclical risks, Wilson said. A “higher for longer” interest rate environment is also weighing on companies and consumers, he added. He thinks these factors will challenge earnings into early 2024 before a recovery begins. With this in mind, the strategist highlighted a combination of defensive growth and late-cycle cyclical plays as those that could outperform the broader market. “We see stock-specific risk remaining elevated, which should be supportive of a stock-picking environment and indicative of a richer opportunity set under the surface of the market where valuations are more compelling than they are at the cap-weighted index level,” Wilson said. The strategist forecasts earnings growth reaching a 16% year-over-year rise in 2025 from positive operating leverage, as well as artificial intelligence and tech-fueled productivity growth leading to margin expansion. Wilson has one of the most bearish targets among Wall Street peers in 2023, predicting the broad market index would end the year at 3,900, according to CNBC Pro’s Market Strategist Survey . — CNBC’s Michael Bloom contributed to this report.