The stock market is likely to make new lows early in 2023 before building momentum in the second half of the year, according to Morgan Stanley chief U.S. equity strategist Mike Wilson. Wilson said in a note to clients on Monday that the S & P 500 will fall to between 3,000 and 3,300 in the first quarter of 2023 as investors grapple with a slowing economy, before rebounding later in the year. "While our year end 2023 base case price target of 3,900 is roughly in line with where we're currently trading, it won't be a smooth ride. We remain highly convicted that 2023 bottom up consensus earnings are materially too high," Morgan Stanley said in a U.S. Equities Outlook for next year. The 2023 year-end target of 3,900 is less than 1% below where the S & P 500 closed on Friday. Once the market has come to grips with lower corporate earnings, stocks could then see a sustained rally, Wilson said. "While we see 2023 as a very challenging year for earnings growth, 2024 should be a strong rebound where positive operating leverage returns—i.e., the next boom. Equities should begin to process that growth reacceleration well in advance, and rebound sharply to finish the year," the note said. Wilson has been one of the most accurate strategists on Wall Street this 2022, laying out a "fire or ice" scenario early in the year and staying bearish throughout, notably during some short-lived rebounds. Wilson also predicted a tactical rally two weeks ago. The strategist said investors should look to play defense in the near future as the recent market rally rolls over. "We recommend investors stay defensively positioned from a sector and style standpoint until the [earnings] estimates reflect the bust. We upgrade Staples to overweight and downgrade Real Estate to equal-weight. This leaves us overweight Healthcare, Utilities, Staples and defensively oriented energy stocks," the note said. — CNBC's Michael Bloom contributed to this report.