S&P 500: Morgan Stanley says ’we’re closer to the end of this rolling correction’

The S&P 500 may be nearing the latter stages of its recent turbulence, according to Morgan Stanley’s Michael Wilson, who wrote in a note Monday that “we think we’re closer to the end of this rolling correction than the beginning.”

Wilson remains “constructive over the next 6–12 months” as earnings growth reaccelerates and market breadth continues to improve, News.Az reports, citing Reuters.

However, he warned that the “pace of increases in oil and the dollar will determine how long volatility persists,” noting that U.S. equities are still better positioned relative to international markets.

The bank emphasised that further near-term weakness could ultimately set up opportunities. 

“Our baseline remains that further weakness in the near term sets up an opportunity to add to the cyclical trades we prefer over the intermediate term,” Wilson wrote, pointing to Financials, Industrials, Consumer Discretionary and Small Caps.

Morgan Stanley highlighted risks to the outlook, including the possibility of oil holding above $100 per barrel for months and a Federal Reserve that does not cut rates or add additional liquidity.

Part of the firm’s constructive stance stems from U.S. resilience amid global uncertainty. The United States, Wilson noted, benefits from a “modest energy surplus,” helping it outperform Europe and Asia.

He also pointed to evidence that the correction is progressing. “Indices have traded sideways, but dispersion has been historically high under the surface,” he wrote, adding that the last phase typically brings “a consolidation in positioning/performance in more crowded areas of the market.”

News.Az