Morgan Stanley: US stocks may fall another 8%, with rebound possible after three key risks clear

TechFlow news, Oct. 28 — According to a Jin10 Data report, Morgan Stanley Chief U.S. Equity Strategist Mike Wilson said in the latest client report that AI financing pressure, the Nov. 3 U.S. midterm elections and tighter financial conditions could push the S&P 500 down to around 7100 points in the coming weeks, about 8% below recent levels. This would be the largest correction since the market turmoil triggered by this year's Iran war.

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

Despite a cautious near-term outlook, Morgan Stanley maintained its year-end S&P 500 target of 8000 points and set a base-case target for the next 12 months at 8300 points. The firm believes markets typically perform better after midterm elections. Data from 1950 to 2022 shows that the S&P 500 has risen by an average of about 8% in the three months following an election.

Source: TechFlow