Morgan Stanley's Chief Equity Strategist: Investors need to prepare for market adjustments, US stocks may pull back by 10% in Q3
Morgan Stanley's Chief Equity Strategist Michael Wilson stated that investors should prepare for a stock market correction. Uncertainties surrounding U.S. politics, corporate earnings, and Federal Reserve policies are beginning to put pressure on the market, potentially leading to a 10% market pullback. Wilson advises investors to focus on leading growth stocks and predicts that the S&P 500 index will reach 5400 points by mid-next year. However, Wilson also points out that the lower participation in this year's S&P 500 index rally does not necessarily mean that stocks will collapse, as other parts of the market may follow the lead of large-cap stocks or drag down the index
According to the Zhītōng Finance APP, Morgan Stanley's chief equity strategist Michael Wilson suggests that investors should start preparing for a stock market adjustment, as uncertainties surrounding US politics, corporate earnings, and Federal Reserve policies are beginning to put pressure on the market.
Wilson stated in an interview with foreign media on Monday, "The likelihood of a 10% correction between now and the election is very high. This is not because of the election, but because uncertainty may dominate."
He pointed out that equity investors have managed to overlook these risks so far. Their solution to the lackluster earnings growth of most companies has been to bet on a few high-quality growth stocks that have seen a surge in profits over the past year.
Although this strategy has generally worked, investors may eventually have to face the possibility that the recent economic dynamics that have supported stocks with the "bad news is good news" mentality may ultimately turn against them.
Uncertainties surrounding monetary policy and election prospects could also push the market lower in the coming months. Wilson believes that there is only about a 25% probability that the S&P 500 Index will finish the year at or above its current level.
Wilson predicts that the stock market will be "volatile" in the third quarter. He advises investors to focus on the growth stocks that have led the way in the S&P 500 Index and the Nasdaq Composite Index this year. This Morgan Stanley strategist, known for his bearish views, has recently become slightly more optimistic, raising his target for the S&P 500 Index and forecasting that the index will reach 5400 points by mid-next year.
As of Monday, the S&P 500 Index has achieved its fifth consecutive day of gains, marking the longest winning streak since January. The Morgan Stanley strategist noted that despite the "historically low" participation in this year's S&P 500 Index gains, data shows that this does not necessarily mean that stocks are heading for a crash. Instead, historically, the chances of the rest of the market catching up with the rise in large-cap stocks are roughly equal to the possibility of large-cap stocks slowing down and dragging down the index