Morgan Stanley: US stocks face a 7% downside risk in the short term

Odaily News: The team of Morgan Stanley strategist Michael Wilson stated that US stocks are vulnerable to further increases in energy prices and heightened volatility in the bond market. Under such a scenario, the S&P 500 index 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 valuation of the S&P 500 index has declined over the past four months to its lowest level since March.

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