Morgan Stanley CIO and Chief US Equity Strategist Mike Wilson says US stocks could be nearing the end of their current correction as markets digest months of economic and geopolitical concerns.
In a new episode of Morgan Stanley’s Thoughts on the Market podcast, Wilson argues that the stock sell-off began long before recent headlines amplified market volatility.
“The key point is that before the attacks in Iran two weeks ago, the stock correction was already very advanced, both in terms of time and price. In fact, 50 percent of all stocks in the Russell 3000 are now down 20 percent from their 52-week high.”
Wilson notes that markets have been grappling with several risks for months, including concerns about artificial intelligence disrupting labor markets, private credit stress and tighter liquidity conditions. More recently, geopolitical tensions and rising oil prices have put further pressure on stocks.
According to Wilson, corrections often reach their end stages when market leaders and major indices begin to fall sharply, leading to capitulation among investors.
Despite the volatility, he believes that the current downturn may be less severe than last year’s, due to stronger economic growth, improving earnings conditions and greater fiscal support. Wilson also points to looser monetary policy from the Federal Reserve compared to the previous year.
“The bottom line is that equity markets have been processing for months many of the concerns now making headlines. We think this means we are closer to the end of this correction than the beginning, and investors should get ready to buy any definitive capitulation that may occur with the next bad headline.”
Wilson adds that potential catalysts for an eventual market decline could include a more hawkish tone from the Federal Reserve or increased volatility around the upcoming expiration of triple options. However, he says investors should be prepared to add exposure if markets experience a final sell-off, noting that market bottoms often happen faster than peaks.
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