Banking giant Morgan Stanley believes that the S&P 500 correction is about to end sooner than most investors expect.
In a new episode of the bank’s Thoughts on the Market podcast, Morgan Stanley CIO Mike Wilson says this year’s correction holds similarities to last year’s Liberation Day capitulation when investors worried about tariffs, immigration controls and other factors.
This year, Wilson says the concerns now revolve around AI disruption and rising oil prices.
“Recall that the major indices started to accelerate lower in February and early March. The concern at that time was centered around tariffs. But like today, equity markets have been trading poorly for months under the surface on additional concerns that had nothing to do with tariffs. More specifically, equity markets have been worried about risks related to DeepSeek, immigration controls, and DOGE. Tariffs then provided the final blow.
This time around, markets have been worried about AI disruptions on labor markets, private credit defaults, and liquidity tightness, well before the Iran conflict escalated. Now, it’s interesting to note, but not surprising, that crude and volatility began to rise in January, signaling the market was ahead of this risk, too. Corrections typically don’t end, though, until the best stocks and highest quality indices get hit, and that usually takes a capitulatory shock.”
According to Wilson, the conflict in Iran has sparked a final leg down in the S&P 500, and investors should get their shopping list ready for a possible market reversal to the upside.
“Last year, this was Liberation Day. This time around, that event is the Iran conflict and concern about a sustained rise in crude prices above $100 a barrel. This final corrective phase has begun in our view, with the S&P 500 having its worst two-week stretch since last April. To be clear, I don’t expect this capitulation or drawdown to be as bad as last year…
Bottom line, equity markets have been digesting many of the concerns for months that are now hitting the headlines. We think this means that we are closer to the end of this correction rather than the beginning, and investors should be getting ready to buy any final capitulation that may occur on the next bad headline…
Market lows happen faster than tops. So be ready to add risk in anticipation of the bull market resuming.”
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