Morgan Stanley has predicted the end of the S&P 500 sell-off. He expects it to grow by 18%
U.S. stock markets are nearing the end of the recent sell-off, Bloomberg and MarketWatch report a statement by Morgan Stanley strategist Michael Wilson. According to him, the pressure on the markets in recent weeks is explained by two factors: the tightening of the Fed's rhetoric after the October rate cut and deteriorating liquidity due to the government shutdown, when funds accumulated in the Treasury account instead of working in the economy. Formally, the S&P 500 fell only 5% from its record highs, but the real damage "under the hood" was deeper: two-thirds of the thousand largest companies lost more than 10% of their capitalization.
"Such latent weakness is a sign that we are closer to the end of this correction than the beginning," Wilson noted, adding that volatility on the near-term horizon cannot be ruled out. However, the bank sees "any further near-term weakness as an opportunity to increase long positions for next year." Stateg notes that the US economy is not nearing the end of the cycle, as many investment banks think, but instead is entering the early phase of a new growth phase. He is confident that the Fed will eventually decide to lower its key rate amid a sluggish labor market and deteriorating liquidity, and that artificial intelligence will provide efficiency gains.
Wilson predicts the S&P 500 will rise to 7,800 points in 2026. That's about 18% from current levels, which is one of the most optimistic targets among all the forecasts Bloomberg tracks. "Morgan Stanley's bullish view of the S&P 500 is based on a more optimistic outlook for corporate earnings growth: the investment bank expects EPS (earnings per share) to increase by 17%, while Wall Street analysts on average are putting in about 14%, MarketWatch notes.
On the background of current trends in economy - growth of profit revisions, stabilization of prices, transition of consumers from services to goods, decrease of rates and deferred demand - Morgan Stanley makes a bet on consumer durables, small capitalization companies, health care, financial sector and industry. The recommendation on the consumer discretionary sector is particularly knocked out, as this segment has been at the bank's "underweight" for the past three years. The bank intentionally does not recommend buying securities of tech sector giants, MarketWatch emphasizes. According to Wilson's assessment, the Magnificent Seven players may continue to decline, pulling up against the rest of the market, which has already sagged more.
At the opening of trading on January 24, the S&P 500 index jumped almost 1%. The tech-heavy Nasdaq Composite added 1.6%.
This article was AI-translated and verified by a human editor
