Morgan Stanley: U.S. Stocks Face 7% Short-Term Downside Risk

Jin10 News, September 21 – The team of Morgan Stanley strategist Michael Wilson stated that U.S. stocks are vulnerable to further increases in energy prices and heightened volatility in the bond market. Under such a scenario, the S&P 500 Index could decline by as much as 7%. The strategists noted that while strong corporate earnings have so far helped stock prices withstand the pressure of rising bond yields, the valuation of the S&P 500 Index has already fallen to its lowest level since March over the past four months. Wilson wrote in a report: "If valuation corrections worsen further in the short term due to tighter financial conditions and/or a significant rise in energy prices, we believe the S&P 500 Index could drop to 7100 points before the bull market resumes by year-end." This level implies a 7% decline from last Friday's closing price. Wilson also expects market volatility to increase ahead of the midterm elections in November. However, he ultimately believes that strong corporate earnings prospects will drive a year-end rebound, with the index moving closer to its 8000-point target. This suggests a nearly 5% increase from current levels.