Economy
Morgan Stanley Says US Market Correction Is in Its 'Final Innings'
Morgan Stanley strategists say the US market correction that began in June is in its "final innings", with the November 3 midterm elections expected to remove a major market overhang — though risks after the vote remain.
Photo: Forextime.com / Wikimedia Commons (CC BY 2.0). Photo shows a stock market concept, not Morgan Stanley's offices.
The US market correction that began in June is in its "final innings", Morgan Stanley strategists said on Monday, adding that the November 3 midterm elections should help remove a major overhang for investors.
"We expect near-term clearing events to provide an attractive opportunity to add risk to quality cyclicals that have de-rated as we head into 2027," strategists led by Michael Wilson, Morgan Stanley's chief US equity strategist, said.
Wilson noted that 60% of Russell 3000 stocks have already seen at least a 20% correction since June, and said the S&P 500 catching down to weaker market breadth is typically the last stage of a slump.
The risk of a correction led by artificial intelligence company earnings has kept markets on edge. Last month, the tech-heavy Nasdaq-100 shed trillions of dollars in market value and stood on the brink of entering correction territory.
Looking at history, the strategists said large-cap stocks have typically gained 15% in the six months following election results, adding that a Democratic sweep is already priced in by investors, in their view.
The bigger risk, according to Morgan Stanley, would come after the vote, with the potential for renewed military escalation with Iran or new tariffs.
Recent earnings reinforce signs that the correction could be nearing its end, the strategists said. "Investors are no longer overlooking FCF shortfalls as they often did earlier in the cycle, consistent with a more typical mid- to late cycle environment where earnings durability and cash conversion matter more," Wilson said.
Wilson does not expect the Federal Reserve to rush toward interest rate cuts or add support. Relief could instead come from the US Treasury spending down its cash pile, from about $1.05 trillion to about $850 billion by year-end, he said.
Source: Reuters
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