The chief investment officer at Morgan Stanley believes any S&P 500 pullback is an opportunity to boost equities, predicting that the index will breach the 8,300 level in the coming months.
In the Morgan Stanley Market Insights podcast, Mike Wilson he says The US is now at risk, and the economic recovery witnessed in Q1 is a clear sign that the market has already bought into several risks.
“In the first quarter, many investors looked at the S&P 500’s decline of 10% and concluded that the market was insensitive. I think that really misses the point. About half of the Russell 3000 saw a decline of 20% or more, and the leading S&P 500’s profit is down 18% from its peak.
That is not easy. That’s the market doing what it does best: reducing risk before it matters. And those risks were not small.
We had concerns about private debt and the huge debate surrounding AI disruption to labor markets, and a new war that raised oil prices by 100%. In most of these vulnerable areas, the market offered 40% plus controls.
So the tempting question I would like to ask now is this. What if the biggest risk from here isn’t to be too high but to be more cautious after the market is already out of business? “
Wilson believes the S&P 500 will rise to 8,300 in the next 12 months, driven by strong earnings forecasts.
“We raised our S&P 500 EPS by about 5% as a way to transition from the recovery, based on AI, financial support, and a CapEx strategy that continues to grow. The earnings are very important. In previous years, oil shocks would wipe out the industry, earnings started to decline or fall even before the crisis. Today, the opposite is happening.”
Considering the target of 8,300, the Morgan Stanley CIO suggests that the S&P 500 will not rise in a straight line, allowing long-term investors to accumulate on the dips.
“The correction earlier this year was more important than many appreciated in terms of valuation, and the earnings story is just starting to pick up. The road won’t be smooth, so use any corrections to set the stage for continued expansion that we believe will continue.”
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