Morgan Stanley strategist Michael Wilson sees market slide nearing its end

Morgan Stanley strategist Michael Wilson said Monday that the U.S. stock market’s slide since June is entering its final phase and could lead to a year-end rally.

Wilson, the bank’s chief U.S. equity strategist, said the S&P 500 is nearing a downside target of 7,100 to 7,300 points. His team said the index’s breadth is now narrowing, a development the bank had expected in the correction’s closing stage.

His assessment follows a postelection rout. On Nov. 5, the S&P 500 lost 4.4% and the Nasdaq 100 dropped 6.4%, Oninvest reported, citing Bloomberg. The report attributed the declines to concern that Democrats’ midterm election victory would slow construction of artificial intelligence infrastructure.

Chip stocks took a steep hit. The Philadelphia Stock Exchange Semiconductor Index dropped 12% on Nov. 5 and is still 36% beneath its June peak, the report said.

“This is the place where you should be adding risk over the next two to three weeks,” Wilson told Bloomberg. He said the force of the postelection selloff had surprised him.

In a note, Wilson recommended a gradual approach to buying, according to BloombergHT. “Rather than waiting for a perfect bottom, we recommend increasing exposure to quality cyclical stocks in the coming weeks, as these stocks have seen significant valuation adjustments while demonstrating strong earnings per share performance,” he wrote.

Wilson maintained his 8,000-point year-end S&P 500 target, which implies an 8.4% increase from Friday’s close. He favors consumer-focused stocks as well, especially if rates and oil prices continue to decline.

Other strategists interviewed by Bloomberg differed on the outlook. “It would be imprudent to bail on the market after it had a slight adjustment in response to the election outcome,” said Jonathan Golub, chief equity strategist at Seaport Global Holdings. He expects the index to finish the year at 8,200 and described himself as “an unequivocal buyer.”

Ohsung Kwon, chief equity strategist at Wells Fargo, offered a more cautious view. “The semis and the AI infra trade that really carried the market so far this year is going to continue to be under pressure,” Kwon said. His year-end target stands at 7,700.

Ed Yardeni of Yardeni Research said “the air is coming out of that bubble” in AI stocks, although he does not expect it to burst. Yardeni is retaining his 7,900 target and recommends healthcare stocks.

During the Nov. 5 decline, retail investors sold a net $151 million in individual stocks, AInvest reported, citing Vanda Research data. Vanda strategists described a “rare buyers strike,” writing that the usual retail dip-buying bid had “effectively disappeared from individual names.”

Retail buyers returned by Friday, led by the leveraged SOXL and TQQQ funds, though Bloomberg described their purchases as “modest.”