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Leon Mathias

Why is Morgan Stanley expecting a sharp correction in the stock markets and what is the company advising investors?

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With markets pricing in a Fed rate cut later this month, US equity markets are edging higher with all the key stock indices hitting fresh all-time highs every other day. However, Morgan Stanley's chief investment officer, Mike Wilson is cautioning investors from jumping into the stock markets at current levels. According to Wilson, while the stock markets may not experience the kind of slump seen last year, they are expected to correct by around 10% in the next three months.

Wilson believes that corporate earnings estimates are about 5-10% higher than what they should be and once those estimates are revised, it would weigh on stocks with the S&P 500 likely to slide to 2,750 by the end of the year, a more than 8% drop from Thursday’s closing of 2,995.10. He also said the broad index is likely to face technical resistance at 3,000 and while the Fed is certain to cut interest rates this month, it could turn out to be “sell the news” kind of affair. He believes investors will be better off if they buy stocks over the next three to six months or maybe in 18 months too.

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