The long-awaited earnings recession has finally arrived, but investors are still too optimistic and should anticipate more disappointment as the year drags on, according to Morgan Stanley.

Mike Wilson, the firm's chief U.S. equity strategist, lowered his 2019 S&P 500 earnings per share growth expectation to 1 percent from 4.3 percent based on the many downward profit revisions during the fourth-quarter reporting season.

And while consensus numbers are already pricing in zero growth for the first half of this year, Wilson contended that predictions for a reacceleration in the second half of 2019 are misplaced. He said the year could end with earnings down as much as 3.5 percent overall.

"We are increasingly convinced that consensus earnings expectations for 2019 have further to fall and that the optimistic uptick currently baked into fourth-quarter 2019 estimates is unlikely," Wilson wrote Monday. "A modest further decline in earnings will deliver the earnings recession we called for. Equity returns can still be positive in this environment, but they will likely be weaker than they otherwise would have been."

Source: John Butters, FactSet

Wilson, who first predicted an earnings recession in 2018, now sees 2019 S&P 500 EPS at $164, below the consensus estimate of $170.

The strategist added that when investors have assumed a jump in earnings growth four quarters out in the past, the numbers for all four quarters ahead tend to fall but the growth quarter tends to fall the most. In fact, if current estimates move in line with history, investors could see a full-year decline of 3.5 percent in S&P earnings, he wrote.

About 66 percent of the S&P 500 has reported fourth-quarter 2018 earnings thus far. While nearly 70 percent have topped analyst expectations on the bottom line, only 60 percent have surprised to the upside on revenue. Looking ahead, Refinitiv joined other market data researchers FactSet and S&P last week in predicting a decline in S&P 500 earnings in the first quarter of 2019.

FactSet predicted a first-quarter earnings loss of 2.1 percent as of Monday morning.