Morgan Stanley’s Wilson Says S&P 500 Risks 11% Drop on Trade War

Economic

Summary:

Morgan Stanley’s Michael Wilson warned the S&P 500 could drop up to 11% if US-China trade tensions persist past November. He expects volatility to rise but sees recovery resuming once tensions ease.

US stocks are at risk of sinking as much as 11% if trade tensions between the US and China aren’t resolved before a November deadline, according to Morgan Stanley’s Michael Wilson.

The bank’s chief US equity strategist said the market was poised for a pullback given elevated investor exposure and high valuations, while Friday’s trade-war escalation “was unexpected by the consensus, and us.” Wilson has maintained a bullish view on US stocks this year and was among the few strategists who correctly predicted a robust recovery following April’s tariffs-fueled selloff.

“If associated trade uncertainty/volatility continue into early November, we could see a larger correction than most are expecting,” Wilson wrote in a note. He forecast that the S&P 500 Index could drop to between 6,027 and 5,800 points in a bear-case scenario. That implies a selloff of between 8% and 11% from Friday’s close.

Morgan Stanley’s Wilson Says S&P 500 Risks 11% Drop on Trade War_1

US equities were roiled on Friday after Trump threatened an additional 100% tariff on China as well as export controls on critical software beginning Nov. 1. The S&P 500 sank 2.7%, while the Nasdaq 100 slumped 3.5%, halting a record-breaking bull run that was fueled by bets on artificial intelligence.

Index futures rebounded on Monday as the White House signaled openness to a deal with Beijing. Wilson reiterated in the note that his base case is for a rolling economic recovery to resume into 2026 once trade tensions subside.

This thesis “is strong enough to withstand this type of tactical trade escalation in the near-term as long as it eventually de-escalates,” he said.

Source: Bloomberg

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Morgan Stanley’s Wilson Says S&P 500 Risks 11% Drop on Trade War

Source: Bloomberg

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