A "Cleaning-Out" Pullback: Morgan Stanley Suggests Entering the Market Ahead of a Rally to 8,000 Points

The U.S. stock market is facing a series of “corrections” that could temporarily push the S&P 500 index down by about 9%—to 7,100 points, said Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, in an interview with Bloomberg. However, he believes investors should use this correction to build up their positions, as the market will then resume its upward trend and reach 8,000 points.

According to the strategist, the main triggers for a short-term pullback are the U.S. midterm congressional elections, scheduled for November 3, as well as tensions surrounding spending on artificial intelligence and a liquidity shortage. Despite market uncertainty stemming from the ongoing U.S.-Iran conflict—which has periodically weighed on stocks throughout the year—Wilson remains “bullish.” He is confident that the correction will end with a strong rebound, Bloomberg notes.

Wilson warned that midterm elections are always a headwind. However, according to Morgan Stanley, since 1950, U.S. stock prices have consistently risen in the 6- to 12-month period following Election Day. That said, the rally doesn’t always begin immediately—by the end of the year, the market may even pull back, as it did in 2018, the strategist noted.

“I’d say this election is unique in some ways: the president says he’s waiting for the right moment to do something after it. In typical Trump fashion: ‘I’m going to do something spectacular, and no one knows exactly what.’ This element of uncertainty is weighing on investors right now,” Wilson explains.

When asked whether this historical pattern would hold true in the context of a war in Iran, the strategist replied that there are no absolute guarantees on the stock market, but in the past, U.S. elections have also frequently coincided with crises and upheavals that the market ultimately managed to weather. “Perhaps we’ll have to fall first, and then rise. But I’m quite confident that we’re in for a fairly good period lasting at least six months, and maybe even 12—we’ll see if it lasts a whole year.”

A potential shift in control of Congress to the Democratic Party would come as no surprise to Wall Street, Wilson believes. Stock prices are already pricing in a Democratic victory in the House of Representatives and a likely slim majority in the Senate—a 52-to-48 split. Problems for business could arise only in the event of a wider margin, such as 55 to 45, the strategist warned. This would increase regulatory risks and slow the economic growth the country needs to address its national debt problem.

Wilson drew particular attention to the political pressure surrounding data centers, which, in his assessment, has now reached its peak. “It seems to me that we are currently seeing the greatest resistance to the deployment of data centers because this issue has become political.” Many candidates are running on slogans like ‘Not in my backyard’ and ‘We don’t want inflation to rise in our district.’ But as soon as they win, the question ‘So where’s the money for our region?’ comes to the forefront,” the strategist remarks ironically, suggesting that politicians who opposed the construction of data centers may ultimately compromise for the sake of investment.

This article was AI-translated and verified by a human editor