Wall Street strategists have warned investors about falling stocks. What is their advice?

Several major banks - Morgan Stanley, Deutsche Bank and Evercore ISI -warned of a possible market correction in the coming weeks and months. In their view, the S&P 500 Index could begin to decline after rapidly rising from April lows to an all-time high. The catalysts for the collapse will be overheated stock prices and deteriorating economic data, analysts said. In addition, the S&P 500 Index is entering a traditionally weak season, with August and September over the past 30 years yielding an average loss of 0.7% per month compared to an average gain of 1.1% in the other months.

Here's what analysts at three investment banks have to say about the period ahead.

Morgan Stanley strategist Mike Wilson thinks the U.S. market could correct 10 percent in the third quarter due to duty pressure on consumers and businesses, reports Bloomberg.

"Over the past few weeks, we have noticed that investors should expect a slight pullback in the third quarter," the strategist wrote in a note.

That said, Wilson advises investors to use any drawdown as a buying opportunity, as the earnings outlook for next year remains strong. Despite a weakening labor market and inflation due to import duties that could push back the Fed's rate cuts, Wilson is confident - you should buy during downturns.

"The [U.S.] economic recovery has already begun, as evidenced by our analysis of the extent of earnings forecast revisions,"  noted Wilson in a Bloomberg statement. - While the Fed is taking a wait-and-see stance for now, easing inflationary pressures near the end of the year, combined with a weakening labor market, should lead to an active rate-cutting cycle." Morgan Stanley added that additional growth drivers for the stock market will be artificial intelligence companies, a weak dollar and tax relief.

Evercore ISI analyst Julian Emanuel expects a deeper correction, between 7% and 15% in September and October. He points out that Donald Trump's new duties - the highest in a century - coupled with weak employment data are increasing the risks of stagflation (a combination of a downturn in the economy and inflation). According to Emanuel, U.S. GDP growth could slow to 1%, while the Fed's "favorite indicator" of inflation (core consumer spending index) could rise to 3.5% in the fourth quarter. According to the analyst, the market in the short term has exhausted the potential for growth, which causes disappointment to investors.

Nevertheless, Evercore ISI believes that the long-term bullish trend in the market remains, despite possible turbulence. The investment bank analyst advises investors not to get out of the market - especially stocks of companies benefiting from the AI boom. He recommended building portfolios around this theme: include securities of those who create AI infrastructure and technologies, as well as AI users in the communications, consumer goods and IT sectors.

Meanwhile, Evercore ISI also advised defending itself in one of three ways: buying put options (the right to sell a stock at a fixed price) for October, replacing underlying positions with options in individual AI stocks with high sensitivity, or selling/shorting stocks with "unattractive factors" - high valuation and weak market sentiment.

"Growth is still possible, but the market is behaving like a kicking bull. Stay in the saddle," summarized Julian Emanuel.

Deutsche Bank's team, led by Parag Tatte, also warned that a small pullback in the stock market is overdue, given that gains have continued for more than three months in a row. Tatte noted in a Bloomberg presentation that historically, the S&P 500 index typically experiences small pullbacks of 3% every one and a half to two months and larger pullbacks of 5% or more every three to four months. However, he, like his colleagues at Evercore ISI and Morgan Stanley, also advised investors to take advantage of drawdowns to buy.

At the end of trading on August 4, the S&P 500 increased by almost 1.5% to 6329.9 points. Last week, it interrupted its wild rally: after six days of record highs, the U.S. benchmark went into negative territory for four consecutive sessions. Still, the index is up nearly 8% since the beginning of the year and more than 18% over the past 12 months.

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