- The S&P 500 is expected to fall 10% in the near term before the bull market resumes, Morgan Stanley’s Mike Wilson said Monday.
- The investment chief said the benchmark’s unsuccessful attempt to cross 3550 last week indicated that its correction that started in September was not yet over.
- Wilson added that the lack of fiscal stimulus, election uncertainty and another wave of coronavirus infections were headwinds to short-term stock gains.
- Investors should reallocate their portfolios with stocks that depend on the economic reopening, he said.
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The S&P 500 should see a 10% correction in the near term before the bull market continues, according to Morgan Stanley’s chief investment officer.
“With so much uncertainty over the next month, we believe that another 10% correction from Monday’s highs is the most likely near-term outcome before this bull market can resume,” Wilson wrote. , also Morgan Stanley’s chief U.S. equity strategist, in a statement. Monday note.
The benchmark index experienced its first 10% correction in the new bull market in September – after breaking 3,500, it retreated quickly, Wilson said. Last week, the S&P 500 attempted to breach 3550 but failed, a sign that the correction that began in September is not over, he said.
Wilson added that the S&P 500 attempt last week “ran on less momentum” than in September, suggesting there are more downsides to come.
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“Last week’s failure to break through technical resistance for the second time suggests that the correction is not over,” Wilson said. “We expect some softness before and after the election before the next stage of the bull market. ”
Wilson added that the lack of a fiscal stimulus deal, uncertainty over the outcome and timing of the election, and another wave of coronavirus cases were headwinds on the upside in stock prices in the near term.
In the event of a downturn, investors should look to reallocate their portfolios to stocks that will benefit from the reopening of the economy, the chief investment officer said.
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“The best opportunities are in stocks where earnings rise with the cyclical rebound and, most importantly, enough growth to offset headwinds from a multiple contraction as rates rise with the rally,” he said. .
These earnings-driven stocks have outperformed, and Wilson said that means a further upside.
Wilson said stocks like Ralph Lauren, Skechers, Planet Fitness, Xerox Holdings and Advanced Micro Devices have upside potential.
The S&P 500 fell 0.8% on Monday and traded at around 3,457.44 on Monday afternoon.
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