Morgan Stanley’s chief U.S. equity strategist reckons the S&P 500’s correction is not far from over, and, citing important differences to other oil price shock-induced drawdowns, he doesn’t sense the complacency in the market that other analysts have.
Since its 2025 high, the S&P 500’s forward price-earnings ratio has compressed 17%, Wilson wrote in his weekly warm-up research note. That’s comparable to historical corrections in the absence of a recession or a Fed-hiking cycle. Half of the Russell 3000 have fallen by at least a fifth from their 52-week highs.
Moreover, Wilson said that the market has discounted the jump in oil prices — so far, at least. Morgan Stanley’s commodity strategists have noted “ongoing constraints.” They predicted that crude would reach $110 a barrel in the second quarter before declining to $80 a barrel.
Wilson acknowledged a greater risk to international markets, owing to their heavy dependence on imported energy.
Based on prior oil-price shocks, Wilson drew some important distinctions this time round: Earnings growth for the market is accelerating (as opposed to decelerating or turning negative), this shift in oil prices has been less dramatic than previous versions, and the chances of a resumption of tanker traffic through the Strait of Hormuz are higher than those of a U.S. recession.
This period looks very different than prior episodes of an oil-price spike. The oil move is more modest thus far.
Importantly, however, one risk is a tighter monetary policy, Wilson said. He found the inverse correlation between rates and stocks is deeply negative at negative 0.5 — and the market’s rate sensitivity is as high as it’s been in several years. The U.S. Treasury market is now partially discounting a rate increase in 2026, although Morgan Stanley’s economists factored a few cuts into their models.
Wilson said that the U.S. 10-year yield is approaching 4.5%, and it was this level last year that persuaded the White House to pivot and backtrack on tariffs.
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