Morgan Stanley expects a 10% slump in European stocks over the next quarter as several unfavorable conditions converge. The investment bank made the forecast partly based on a slowdown in economic momentum and tighter liquidity conditions in the fixed-income market. "We expect a 10% correction over the summer months as growth slows and liquidity deteriorates," said Morgan Stanley strategists led by Graham Secker in a note to clients on June 4. The investment bank said defensive stocks were better suited to navigate this anticipated downturn over cyclical stocks. In addition, Morgan Stanley expects a decline in earnings per share of 6% for 2023, up from a previously projected 10% decrease, and EPS growth of 6% for 2024.

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Persons: Morgan Stanley, Graham Secker, — CNBC's Michael Bloom Locations: Europe, LYY5