A top Morgan Stanley market strategist believes that the S&P 500 is primed to shed about 7% in the coming weeks before conditions improve.
In a new episode of the bank’s Thoughts on the Market podcast, Morgan Stanley chief US equity strategist Mike Wilson says the stock correction started in October and is now in its latter stages.
But Wilson notes that it is not yet likely the time to buy the dip.
“The questions for equity investors now are what will the world look like in six months, and are prices cheap enough to start assuming a better future? The short answer is not yet, but get your shopping list ready.”
He says the current market environment resembles the pattern seen a year ago, when stocks weakened months before tariffs became the dominant narrative.
“In many ways, we find ourselves in a very similar position to last year… equity markets had already been trading poorly for months on concerns that had nothing to do with tariffs. This time around, markets have been worried about AI labor disruption, private credit defaults, and liquidity shortages long before the Iran conflict escalated.”
According to Wilson, corrections don’t end until the market witnesses a true capitulation event.
“Corrections typically don’t end until the best stocks and highest quality indices get hit, and that usually takes a bigger shock, like Liberation Day or war.”
Looking at the S&P 500’s technical conditions, Wilson sees one more sell-off event before the stock market index reverses to the upside.
“The other thing to consider is that market levels tend to be tied to where they were a year ago. This year-over-year comparison is very important when thinking about support.
Given the sharp decline last year, it tells me we have another month during which the equity markets are likely to struggle. Based on this simple observation and other technical indicators, I think the S&P 500 could trade as low as 6,300 by early April before our favorable fundamental outlook can take hold again.”
Last year, the S&P 500 dropped by more than 15% in April before igniting sharp rallies. As of Tuesday’s close, the S&P 500 is trading at 6,781.
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