Morgan Stanley: Market pullbacks are 'tremendous opportunity'

Mike Wilson, chief US equity strategist at global investment bank Morgan Stanley, said corrective events that temporarily push US stocks lower will represent a "tremendous opportunity" to enter the market.

Speaking to Bloomberg on Sunday (local time), Wilson said the S&P 500 could temporarily fall to around the 7,100 level — roughly 9 percent below its all-time high — due to factors including the US midterm elections, concerns over AI spending and liquidity constraints.

Despite the drag from the Iran war weighing on markets, Wilson forecast that once the short-term corrective phase runs its course, the S&P 500 will rally to the 8,000 level in a bull market.

Wilson said midterm elections have always been a headwind for stocks, but the data show that the probability of the market rising in the six months to one year following midterms has been 100 percent.

However, Wilson said uncertainty is weighing on investors this election cycle because President Donald Trump has signaled an intention to do something "big" after the vote. "The expectation that the Democratic Party will take the House and narrowly win the Senate is already largely priced into the market," Wilson said. "But if the Democrats win by a wide margin, it could lead to tighter regulation or a pullback in data center scale-up."

On concerns that large capital raises and initial public offerings by Meta Platforms, SpaceX and Anthropic could create an oversupply of shares, Wilson said the real economy is absorbing the enormous capital "like a sponge," with US nominal GDP growth running as high as 7.5 percent. Wilson added that companies are issuing shares to actually spend on infrastructure and the like — not for financial engineering — and that this makes the environment one with genuine growth potential.

Asked whether the current environment resembles the indiscriminate share issuance seen during the dot-com bubble, Wilson said the market is "more than capable of absorbing AI companies' fundraising" and is demanding higher credit spreads from weaker issuers. Wilson added that companies are balancing their financing between equity and bond issuance, and that large blue-chip stocks can sustain growth even in a high interest rate environment.