Morgan Stanley executives have warned Wall Street investors that the stock market will see a big drop ahead of the November presidential election.
Mike Stanley, chief U.S. equity strategist at Morgan Stanley, pointed to uncertainty surrounding the presidential election, corporate earnings and Federal Reserve policy.
“I think it's very likely we'll see a 10% correction between now and the election,” Wilson said in an interview on Bloomberg TV on Monday.
“That's because uncertainty prevails for a variety of reasons.”
He said investors can expect the third quarter to be “volatile,” but acknowledged that this is not unusual.
His bearish forecast comes as the broad stock index S&P 500 and the tech-heavy Nasdaq continue to hit record highs, fueled by optimism over Fed interest rate cuts and rapid growth in artificial intelligence companies.
On Monday, the S&P 500 closed at a record high of 5,572.85, while the Nasdaq hit an all-time high of 18,403.74.
Wilson said there's only a 20% to 25% chance that stocks will end the year higher than they are now.
“We're in this environment where a lot of active managers don't like it – narrow scope, hard to re-pick stocks, hard to outperform,” Wilson said.
Analysts at Goldman Sachs, JPMorgan Chase and Citigroup also predict an economic slowdown, citing “weakening” economic data.
Wilson raised his target for the S&P 500 index to 5,400 by mid-2025 from an initial 4,500 earlier this year, but said new growth was scarce.
Despite his warning of a drop in share prices, Wilson said investors shouldn't be overly worried as there could be an opportunity to buy back into the market.
He suggested investors now focus on individual stocks rather than indexes.
