Mike Wilson, chief strategist at Morgan Stanley, said the U.S. stock market is likely to undergo a correction soon due to the U.S. presidential election, corporate earnings and the Federal Reserve’s interest rate cut policy. “I think it’s very likely we’ll see a 10% correction between now and the election,” he predicted.
The third quarter “will be volatile,” he added, as the S&P 500 index began the week at an all-time high. The index has risen 17% this year on expectations that the Fed will cut interest rates twice this year. It has also risen on hopes around artificial intelligence after surging 24% in 2023.
“The chances of an upswing between now and the end of the year are very low, much lower than normal,” Mike Wilson said, estimating a 20% to 25% chance that stocks will end the year higher than they are now.
He said the drop in stock prices is not something to worry about as valuations are currently “unexciting” and therefore create an opportunity for investors to buy in, advising that the best way to trade the stock market is with individual stocks rather than indexes. On income-generating stocks, he said the momentum is there but the problem is that it is difficult to find undervalued stocks in the category, adding, “If it goes down 10%, I’ll probably get interested again.”
Mike Wilson’s comments came after Goldman Sachs Group Inc.’s Scott Rabner said he expects a tough two weeks in August if corporate earnings disappoint. JPMorgan Chase & Co.’s Andrew Tyler remained bullish, though “a little less confident” given recent weakening economic data, while Citigroup’s Scott Kronert warned of a possible selloff in stocks.
