US market correction nearing end, Morgan Stanley strategists say
SPY•Morgan Stanley strategists said the US market correction that began in June is in its “final innings” and that the November 3 midterm elections could remove a market overhang. They noted 60% of Russell 3000 stocks had fallen at least 20% since June and said they expect near-term events to create an opportunity to add risk to quality cyclicals.
1. Correction and breadth
Morgan Stanley strategists led by Michael Wilson said the S&P 500 is catching down to weaker market breadth, which they described as typically the last stage of a slump. They noted that 60% of Russell 3000 stocks had already seen at least a 20% correction since June, while the risk of AI-company earnings had kept markets on edge.
2. Election and market risks
The strategists said large-cap stocks have typically gained 15% in the six months following election results, and that investors had already priced in a Democratic sweep. They cited possible renewed military escalation with Iran or new tariffs as risks after the vote. Wilson said he does not expect the Federal Reserve to rush toward rate cuts or add support, while Treasury spending its cash balance down from about $1.05 trillion to about $850 billion by year-end could provide relief.
3. Earnings and cash flow
Wilson said recent earnings reinforced signs that the correction could be nearing its end. He added that investors are paying more attention to free cash flow shortfalls, with earnings durability and cash conversion mattering more in a mid- to late-cycle environment.
