Morgan Stanley strategists believe the adjustment phase for US stocks is approaching its conclusion in terms of both duration and price, following the S&P 500's worst two-week performance since the tariff turmoil in April, which was driven by the Middle East conflict.
Strategists including Michael Wilson stated that a correction typically concludes only when the highest-quality stocks and major indices are significantly impacted.
They view the S&P 500's performance since the outbreak of the conflict as the "final adjustment phase." Meanwhile, 50% of the stocks in the Russell 3000 index have fallen at least 20% from their 52-week highs, a correction that began several months ago.
The strategists indicated that the "threshold remains high" for surging oil prices to negatively impact the business and earnings cycle, thus maintaining their constructive outlook for the next 6 to 12 months.
However, they noted that minor downside risks could still emerge in the short term if crude oil prices rise more rapidly, if tanker traffic through the Strait of Hormuz does not increase, and if the US dollar and bond yields continue to climb.
Comments