U.S. investment bank Morgan Stanley (MS) is warning of a stock market correction in the current third quarter.
Mike Wilson, Chief U.S. Equity Strategist and Chief Investment Officer at Morgan Stanley, says that the stock market is likely to pullback in coming months due to uncertainty surrounding the U.S. presidential election, corporate earnings, and interest rates.
Wilson expects equity markets to enter a correction, which is defined as a decline of 10% or more from recent highs.
In an interview with Bloomberg TV, Wilson said: “The chance of a 10% correction is highly likely between now and the election… Not because of the election but because uncertainty is likely to prevail.”
Wilson noted that, so far this year, investors have largely ignored soft earnings and focused on a handful of mega-cap technology stocks that have seen their profits rise sharply.
At the same time, the stock market has benefitted from a “bad news is good news” scenario where weak economic data increases the likelihood of interest rate cuts.
Those factors might change heading into the autumn, warns Wilson, who said that the chances of the S&P 500 finishing the year at or above its current level is about 25%.
To manage going forward, Wilson recommends that investors continue focusing on growth stocks that have led the rally this year as the current outperformance is likely to continue in the near-term.
Wilson is well-known on Wall Street for his bearish, or negative, views on equity markets.
However, he recently raised his target for the benchmark S&P 500 index to 5,400, forecasting that it will be at the level in mid-2025.
The S&P 500 is already trading above Wilson’s forecast and is currently at 5,600. Morgan Stanley’s stock has increased 7% so far in 2024 and is trading at $100.59 U.S. per share.
