Morgan Stanley: U.S. Stocks Face Near-Term Risk of 7% Decline

Odaily News: Morgan Stanley strategist Michael Wilson's team stated that U.S. equities are vulnerable to further increases in energy prices and heightened volatility in the bond market, a scenario in which the S&P 500 could fall by as much as 7%. The strategists noted that although strong corporate earnings have so far helped stock prices withstand the pressure of rising bond yields, the S&P 500's valuation has already slid over the past four months to its lowest level since March.

Wilson wrote in a report: "If valuation corrections worsen further in the near term due to further tightening of financial conditions and/or a sharp rise in energy prices, we believe the S&P 500 could fall to 7,100 points before the bull market resumes by year-end." That level implies a 7% decline from last Friday's closing price. Wilson also expects market volatility to increase ahead of the November midterm elections, but ultimately believes that strong corporate earnings prospects will drive a year-end rally, pushing the index toward its 8,000-point target. That would represent a gain of nearly 5% from current levels. (Jinshi)