Morgan Stanley warns: US stocks may fall another 8%, rebound expected after three major risks are cleared

BlockBeats news, October 28: Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley, stated in his latest client note that AI financing pressures, the U.S. midterm elections on November 3, and tightening financial conditions could push the S&P 500 down to around 7,100 points in the coming weeks, a decline of about 8% from recent levels. This would be the largest correction since the market turmoil triggered by the Iran war this year.

Morgan Stanley statistics show that since early June, about 60% of stocks in the Russell 3000 Index have fallen more than 20% from their highs, and about 96% of semiconductor stocks have dropped more than 20%. The firm expects the semiconductor sector could fall another 10% to 15% before mid-November. Credit spreads on data center-related bonds have widened, and CoreWeave's debt also entered distressed territory this month. The Federal Reserve raised interest rates to 3.75% to 4.00% in September, pushing bond yields higher and tightening financial conditions.

Despite its cautious short-term view, Morgan Stanley maintains its year-end S&P 500 target of 8,000 points and sets a 12-month base case target of 8,300 points. The firm believes markets typically perform better after midterm elections end. Data from 1950 to 2022 shows the S&P 500 rose an average of about 8% in the three months following elections.