Signal that the correction in the US stock market is nearing its end
Mike Wilson of Morgan Stanley, who assessed that the correction in the US stock market is about to end, emphasized that negative developments in the markets have largely been priced in.
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Morgan Stanley’s Chief US Equity Strategist Mike Wilson stated that the recent correction in the stock markets has entered its final phase. Addressing investors in his "Thoughts on the Market" podcast, Wilson expressed that despite challenging economic conditions and geopolitical risks, the markets are continuing their bull trend. This view, which Wilson expressed in a report published on March 30, was reiterated in his new statements.
He noted that the current rally, which began in April 2024 and was strengthened by developments in the field of artificial intelligence, continues despite the new risk of war in Iran, uncertainties emerging in the private credit market, and technological transformations. He underscored that the forward price-to-earnings ratio of the S&P 500 index has fallen to 18 percent, a level rarely seen outside of recessions or periods of tightening by the US Federal Reserve.
According to Wilson, more than half of the companies within the index have lost at least 20 percent of their value from their peaks, with some experiencing losses of 30-40 percent. The strategist pointed out that a decline of this magnitude is usually encountered in the final stage of a correction.
On the other hand, employment data released last week is also supporting the markets. Private sector employment in the US increased by 186 thousand last month, witnessing one of the strongest recoveries in the last three years. The fact that earnings growth has returned to high annual levels has increased investor optimism.
Regarding portfolio allocation, Wilson suggests a balanced approach for investors between cyclical stocks and quality growth stocks. Stating that cyclical sectors such as finance, consumer discretionary, and industrials are favored, Wilson notes that large technology companies stand out with their high earnings growth.
According to Wilson, the real threat to the market is not geopolitical risks, but interest rates and the monetary policies followed by central banks. Emphasizing that the 4.5 percent level is a critical threshold for the US 10-year Treasury bond, the strategist suggested that tightening in financial conditions could lead to a policy shift by the Fed.