The chief investment officer at Morgan Stanley believes that any S&P 500 pullback is an opportunity to load up on equities, predicting that the index will shatter the 8,300 level in the coming months.
In Morgan Stanley’s Thoughts on the Market podcast, Mike Wilson says the US is now in a rolling recovery, and the equity correction witnessed in Q1 is a clear signal that the market had already priced in multiple risks.
“In the first quarter, many investors looked at the S&P 500’s less than 10% price decline and concluded the market was complacent. I think that really misses the point. Roughly half of the Russell 3000 saw drawdowns of 20% or more, and the S&P 500 forward price-earnings multiple fell by 18% from its peak as forward earnings continued to rise.
That’s not complacency. That’s a market doing what it does best: discounting risk before the narrative catches up. And those risks were not small.
We had private credit concerns and a major debate around AI disruption to labor markets, as well as a new war that drove oil prices up by 100%. In many of the areas most directly exposed to these risks, the market delivered 40% plus corrections.
So the provocative question I would ask now is this. What if the biggest risk from here is not being too bullish but being too cautious after the market has already done the work?”
Wilson believes that the S&P 500 will soar to 8,300 in the next 12 months, driven by higher earnings forecasts.
“We raised our S&P 500 EPS by approximately 5% as operating leverage from the rolling recovery, AI adoption, fiscal support, and a CapEx cycle that continues to broaden. That earnings point is critical. In prior cycles, when oil shocks ended the business cycle, earnings were already decelerating or contracting outright before the shock hit. Today, the opposite is happening.”
With the 8,300 target in mind, the Morgan Stanley CIO highlights that the S&P 500 will not go up in a straight line, allowing long-term investors to accumulate on dips.
“The correction earlier this year was more significant than most appreciate in terms of valuation, and the earnings story is only getting better. The path won’t be smooth, so use any corrections to position for the continued broadening in earnings that we believe will continue. Just remember, by the time the evidence feels obvious, the opportunity is usually gone.”
Follow us on X, Facebook and Telegram
Don’t Miss a Beat – Subscribe to get email alerts delivered directly to your inbox
Surf The Daily Hodl Mix
Generated Image: Midjourney