Morgan Stanley’s Michael Wilson advises investors to prepare to add risk as the equity market pullback nears its end. While the S&P 500 is just 2% from its all-time high, valuations have declined alongside deteriorating market breadth. Wilson notes that the outperformance of quality stocks and the decline in the equal-weighted index signal a temporary shift, not a trend reversal. He recommends positioning for either a rapid rebound or a gradual recovery into November, emphasizing that this is the time to increase exposure rather than retreat.
Wilson maintains his preference for quality stocks, pointing out that economically sensitive sectors like financials, industrials, and consumer discretionary have borne the brunt of the valuation correction. He sees entry opportunities in capital goods, where earnings-per-share momentum is improving. His outlook counters concerns that rising bond yields could disrupt the AI-driven investment boom, which has powered the four-year bull market. Some investors worry about bubble conditions forming in AI-related equities.
At Goldman Sachs, strategists observe increasingly defensive investor positioning, while JPMorgan notes that stabilizing bond yields could significantly support stocks. Market confidence hinges on strong earnings expectations: S&P 500 companies are projected to report 24.6% year-on-year profit growth in Q3, per Bloomberg Intelligence.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing