Key Moments:
- Morgan Stanley CIO Mike Wilson expects the S&P 500 to face an additional 5%-7% decline before the current sell-off concludes.
- Wilson believes the S&P 500 could trade toward 6,300 by early April before the bank’s favorable fundamental outlook reasserts itself.
- Despite near-term weakness, Wilson maintains a bullish view supported by expected broad earnings growth and fiscal policy measures.
Short-Term Pressure Before Bullish Trend Resumes
The stock market has fallen so far this year, and further weakness may be necessary before the broader uptrend can restart, according to a leading Wall Street strategist.
Mike Wilson, chief investment officer and chief US equity strategist at Morgan Stanley, said the firm expects additional downside for equities, with indexes potentially dropping as much as 7% before the current downturn ends early next quarter.
Market Correction Not Yet Complete
Wilson noted that equity markets have already been hit by the US-Iran war, but argued that typical corrections do not finish until the strongest segments of the market experience more meaningful declines. He said that condition has not yet been fully met in the latest pullback.
“While much of the damage has likely been done to the most vulnerable parts of the equity market, the index remains vulnerable to another 5%-7% downside in my opinion, while crowded stocks could see double digit declines before a final low appears next month,” Wilson said, speaking on an episode of the bank’s “Thoughts on the Market” podcast this week.
Context From Prior Sell-Offs and Current S&P 500 Levels
Wilson highlighted the market’s reaction after President Donald Trump implemented a series of reciprocal tariffs last year, when equities dropped around 20%.
By comparison, the current pullback in the S&P 500 has been relatively mild. The index is down 1% year to date, even amid increased volatility tied to concerns over AI and geopolitical tensions.
He emphasized that the year-over-year performance of the S&P 500 is an important reference point for assessing where support might emerge for the benchmark.
“Given the sharp decline last year, it tells me we have another month during which the equity markets are likely to struggle,” Wilson said, referring to the tariffs-fueled sell-off last April.
“Based on this simple observation and other technical indicators, I think the S&P 500 could trade toward 6,300 by early April before our favorable fundamental outlook can take hold again,” he added.
| Metric / Reference | Detail |
|---|---|
| Expected additional S&P 500 downside | 5%-7% |
| Potential target level mentioned | 6,300 by early April |
| Current year-to-date S&P 500 move | -1% |
| Prior tariffs-related equity decline (last year) | Approximately 20% |
Drivers Behind Morgan Stanley’s Ongoing Bullish Stance
Despite anticipating a near-term soft patch, Wilson reiterated a constructive longer-term view on equities and said there are several factors that could help drive the next leg higher once the current weakness runs its course.
He cited expectations for broad-based earnings growth across the market and noted that the US is relatively better positioned against oil-price shocks than Asia and Europe.
Wilson also pointed to fiscal measures in the One Big Beautiful Bill Act as another potential support, suggesting those policies could help counterbalance any drag from higher oil prices in the short term.
Positioning for a Potential Market Low
Looking ahead, Wilson argued that investors should be prepared for a swift transition once the market finds a bottom.
“Remember, market lows happen faster than tops, so be ready to add risk in anticipation of the bull market resuming later this year,” Wilson said.
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