The stock market is currently experiencing a downturn, but leading strategist Mike Wilson from Morgan Stanley suggests that further declines may be necessary before a recovery can begin. Wilson, the Chief Investment Officer and chief US equity strategist at the firm, indicated that stocks might face another drop of up to 7% before the current sell-off concludes, potentially early next quarter.
This market turbulence has been partly attributed to the ongoing US-Iran conflict, but Wilson emphasized that comprehensive market corrections usually do not stabilize until the most resilient companies face significant setbacks. According to him, the market’s latest dip has not yet achieved that critical threshold.
In a recent episode of Morgan Stanley’s “Thoughts on the Market” podcast, Wilson elaborated on the current state of equities, commenting that while the most vulnerable segments of the market have likely absorbed the brunt of the damage, there is still potential for an additional 5% to 7% decline in the broader indexes. Moreover, he noted that certain crowded stocks might experience even steeper losses, possibly reaching double-digit declines, before the market hits its final low next month.
Wilson drew a historical parallel, recalling that equities plummeted by around 20% following the implementation of reciprocal tariffs by former President Donald Trump last year. In comparison, the S&P 500 has seen a much milder decline of only 1% year-to-date, amidst fears surrounding artificial intelligence advancements and geopolitical tensions.
He stressed the importance of examining year-over-year performance when evaluating potential support levels for the S&P 500. Citing last year’s sharp dips, Wilson expects the equity markets to continue their struggle for at least another month. His analysis includes the possibility of the S&P 500 trading toward 6,300 by early April, before a more favorable economic landscape allows for a turnaround.
Looking beyond the immediate challenges, Wilson identified several factors that could serve as catalysts for market recovery. He highlighted overall earnings growth and noted that the US economy appears more shielded from oil price fluctuations compared to counterparts in Asia and Europe. Additionally, Wilson pointed to the potential benefits from fiscal policies associated with the One Big Beautiful Bill Act, which could mitigate the short-term impacts of rising oil prices.
In closing, Wilson urged investors to be prepared for market lows to materialize more swiftly than peak values, anticipating that a bull market could soon reemerge later in the year.
