Analysts at Morgan Stanley have flipped their opinion on the S&P 500, giving a bearish forecast for the index and suggesting a dip is incoming. The stock market’s rough end to last week sparked concerns amongst Wall Street experts on top stocks and the major US indexes, with Morgan Stanley giving the latest wake-up call. On Friday, US stocks saw the sharpest one-day drop since April, with the S&P 500 sliding over 2.7%
Looking at last week’s dip, Morgan Stanley analysts believe the market’s next move is likely to test just how sturdy the bull stock market currently is. Led by analyst Mike Wilson, the bank warns that the S&P 500 may face a deeper correction if tensions between the U.S. and China don’t de-escalate soon. Following last week’s additional 100% US tariff on China, stocks like Apple and Nvidia with close ties to both countries sank in value. Both of those stocks are key staples of the S&P 500 index, and lay out a path for smaller stocks in the index to follow.
Morgan Stanley laid out their potential downside target to 6,027, nearly 11% below recent highs, if the volatility persists into early November. “Given elevated systematic, retail, and hedge fund positioning, concerns around valuation, and unfavorable seasonals, trade escalation with China served as the catalyst for the weakest index-level performance we have seen since April,” the analysts’ note this week reads.
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On the flip side, things could change for the index and its forecasts if the Fed decides to execute another interest rate cut this month. Another top investment firm, Wells Fargo, already expects two additional rate cuts through the end of the year, including this month. Should the Fed cut rates, it could send stocks higher as it did back in September. Nevertheless, Morgan Stanley’s bullish, bigger-picture thesis remains mostly intact for the index. The firm argues that the bear market concluded in April and that a powerful new bull cycle is underway.