Key Takeaways:
Morgan Stanley's top equity strategist expects the S&P 500 to stumble through late summer before a year-end rally to 8,000.
Morgan Stanley's Mike Wilson said the S&P 500 could face an early autumn pullback before resuming its climb to 8,000 by year-end, keeping a bullish structural view on US equities despite near-term headwinds.
"The consolidation over the past two months is going as we expected, and the year-end target of 8,000 remains very achievable," Wilson, chief equity strategist at Morgan Stanley, said in a note Monday.
Wilson warned that if the momentum unwind spills into other areas or the conflict in the Middle East escalates, the S&P 500 could consolidate further toward 7,000 — a level he described as durable technical support before the bull market resumes in earnest. Brent crude has already topped $90 a barrel, adding to the cross-currents.
The call comes as the S&P 500 has been range-bound for two months, with the semiconductor index entering a bear market after sliding 20% from its all-time closing high reached a month ago. The PHLX Semiconductor Index's 10 percent drop last week was its worst since April 2025, fueled in part by the release of a new Chinese AI model that triggered broad selling in tech stocks on Friday.
Broadening trade gains traction
Wilson said he does not expect semiconductors to regain their leadership position in the second half of this year. Instead, he sees the broadening trade having legs, with a wider range of industry groups leading the market higher once the current correction is finished. He flagged consumer discretionary goods and transports as beneficiaries where strong earnings revisions are underappreciated.
Morgan Stanley prefers hyperscalers over semiconductors for the next several months, though the former has gained a 30 percent edge over chips in three weeks, making the risk-reward less attractive. The bank earlier this month argued that the Magnificent Seven tech giants had dropped too much, citing strong core businesses and leadership possibilities for agentic AI.
JPMorgan struck a more bullish tone on chips, with a team led by Mislav Matejka saying semiconductors should soon find a bid, supported by strong earnings and evidence that meaningful supply additions are unlikely before 2028. The JPMorgan team said the relative strength index on chips is moving toward oversold territory as the momentum factor that drove investors into those stocks has largely unwound.
Cross-asset pressures mount
The S&P 500's consolidation coincides with rising geopolitical risks and a shift in the macro backdrop. Brent crude above $90 a barrel has added to inflation concerns, while the unwind of momentum trades has increased overall market volatility. Wilson noted that rotations and momentum factor unwinds in their initial stages tend to lead to higher volatility, a dynamic playing out across US equities.
Stock futures pointed higher Monday despite the escalation in the Middle East and Brent's move above $90, suggesting traders are positioning for a near-term bounce. Wilson's 8,000 year-end target implies roughly 10 percent upside from current levels, contingent on the broadening trade taking hold and the bull market resuming after the seasonal weakness.
This article is for informational purposes only and does not constitute investment advice.
