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Morgan Stanley Says S&P 500 Could Drop 26% in Months

  • Risk-reward for stocks is extremely poor amid hawkish Fed: MS
  • Strategist says S&P 500 to slide as much as 26% in first half
Updated on

Expensive US equities are flashing a warning sign that could see the S&P 500 sliding as much as 26% in the first half of this year, according to Morgan Stanley strategists.

While recent data suggest the economy might be able to dodge a recession, they’ve also taken the possibility of a Federal Reserve pivot off the table, according to a team led by Michael Wilson. That doesn’t bode well for stocks as the sharp rally this year has left them the most expensive since 2007 by the measure of equity risk premium, which has entered a level known as the “death zone,” the strategist said.