Morgan Stanley strategist Michael Wilson said the gap between the S&P 500's performance and the market's weak breadth needs to close, and he expects the two to meet somewhere in the middle over the next month unless bond market volatility eases. In a note on Monday, Wilson wrote that the firm leans toward a meeting in the middle if bond volatility does not calm down. Morgan Stanley still sees the market in a classic mid-cycle phase, with strong earnings offsetting lower valuations and higher-quality stocks taking the lead. Wilson noted that more than half of Russell 3000 stocks have fallen at least 20% since June, while the S&P 500's P/E ratio is back near 19 times, its March low, and earnings growth for the median stock remains in the mid-teens. He added that market breadth improved through most of the summer even as energy prices and yields rose, and that the recent narrowing in breadth occurred after Jackson Hole as the market priced a more hawkish Fed path. If bond volatility persists, Morgan Stanley expects breadth and index prices to meet in the middle over the next month before a strong finish to the year; if volatility eases sooner, the bank believes breadth should catch up with the index, lifting both. Wilson continues to favor large-cap quality stocks, especially asset-light companies with rising earnings estimates, and would add riskier stocks over the next month if the index falls. Morgan Stanley also said companies making heavy use of AI are seeing stronger margins and earnings, and that consensus assumes those benefits fade in later years, leaving room for further upside.
Morgan StanleyMorgan Stanley strategist Wilson's note forecasts breadth and index meeting in the middle; no company-specific financial event, just market strategy commentary.
NVIDIA CorporationMorgan Stanley says companies making heavy use of AI are seeing stronger margins and earnings, implying continued AI adoption demand benefiting NVIDIA.
