Morgan Stanley Flags Near-End S&P Correction After 8.4% Slump and 15% P/E Decline
Morgan Stanley’s Michael Wilson says the S&P 500 has fallen 8.4% since Jan. 27, forward P/E is down over 15% and over half of Russell 3000 stocks trade over 20% below 52-week highs, signaling a near-final correction. They warn rising Fed rates and 10-year yields near 4.5% threaten valuations.
1. Correction Nearing Final Stage
Morgan Stanley strategists led by Michael Wilson highlight that the S&P 500 has dropped 8.4% since January 27, its forward price-to-earnings ratio is down over 15%, and more than half of Russell 3000 stocks trade over 20% below their 52-week highs, patterns matching prior non-recession growth scares.
2. Energy Costs and Valuation Impact
Brent crude reached $116.89 a barrel after the Strait of Hormuz closure, but strategists note the year-on-year oil price increase is about half that of past shocks that ended business cycles, indicating markets have largely priced in higher energy costs and expect tanker flows to resume.
3. Rate Hike Risks to Equities
With the 10-year Treasury yield approaching 4.5% and equity sensitivity to rate moves near multi-year highs, the team warns further Federal Reserve interest-rate increases remain a significant threat to stock valuations in the near term.