A top Morgan Stanley strategist thinks the risk of a recession has gone up ‘materially’ and stocks could fall another 15%

With the S&P 500 falling more than 16% year-to-date, investors have been left wondering if an end to the pain is coming anytime soon.

The answer from investment banks? It’s unlikely.

In a Sunday note to clients, Michael J. Wilson, Morgan Stanley’s chief U.S. equity strategist and CIO, argued stocks still have further to fall before hitting their bear market bottom.

“We remain confident that lower prices are still ahead,” Wilson wrote. “In S&P 500 terms, we think that level is close to 3,400, which is where both valuation and technical support lie.”

If Wilson is correct, his price target means the S&P 500 still has a roughly 15% drop ahead of it from Monday’s levels. However, the strategist wrote that he expects the index will recover to 3,900 by next spring, even as market volatility continues. While a year of flat trading won’t exactly be music to the ears of ailing stock investors, it’s definitely better than the current trend.

The S&P 500 posted its sixth straight week of losses for the first time since 2011 last week, despite a Friday relief rally. The recent downturn has many market watchers arguing a recession is on the way, but for now, Morgan Stanley doesn’t see a serious economic downturn as its base case.

On Monday, Wilson argued that the “risk of a recession has gone up materially,” and Morgan Stanley’s bear case now assumes the U.S. will fall into a recession by 2023 due to “sticky” inflationary pressures, sustained margin declines, and a broad deceleration in sales growth.

It’s not the only investment bank worried about a recession. Deutsche Bank has said it sees a “major” recession hitting the U.S. economy by next year, and former Goldman Sachs CEO Lloyd Blankfein argued the current recession risk is “very, very high” in a CBS “Face the Nation” interview on Sunday.

Fire and Ice

Back in November, Morgan Stanley revealed its “2022 year ahead outlook,” which predicted a 20% drop ahead for the S&P 500 and described how two forces would act together to slow the then-raging stock market.

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First, the investment bank’s economists argued that “fire” from the Federal Reserve’s interest rate hikes would hurt stocks’ performance in the first half of the year.

Second, they argued that supply chain issues and inflation would act as “ice” to slow economic growth, a theory that has been all but ensured by COVID-19 lockdowns in China and the ongoing war in Ukraine.

Despite pushback from the Street at the start of the year, the investment bank’s economists stuck to their guns, and have been correct so far.

Economic growth has slowed, shrinking 1.4% in the first quarter, and stocks have taken a hit as tech and growth names continue to be repriced for a new, more hawkish, era of Fed policy.

When Morgan Stanley’s report was first published, the S&P 500’s price-to-earnings (P/E) ratio was 21.5x, higher than at any point in history other than the dot-com bubble. The investment banks’ economists predicted it would fall to 18 through the first half of the year, and again, they hit the nail on the head as the index is currently trading at around 17 times earnings.

But now, the Morgan Stanley team sees valuations falling even further before the current stock market pain comes to an end, arguing earnings guidance is likely to disappoint through 2022.

“The bottom line is that this bear market will not be over until either valuations fall to levels (14-15x) that discount the kind of earnings cuts we envision, or earnings estimates get cut,” Wilson wrote.

This story was originally featured on Fortune.com