Morgan Stanley: A 10% selloff in the stock market is most likely

Michael Wilson, chief U.S. equity strategist at Morgan Stanley, and his colleagues believe that the narrow breadth of winners in the stock market will likely result in a 10% correction before giving way to a renewed rally.

The analysts, in a Monday research report, say that either a host of risks that are building beneath the surface of the markets’ unimpeded uptrend — spiking COVID-19 cases, 2020 presidential election uncertainty and nearly unchecked government spending — must be cured or the recent technology-related winners need to fall along with the rest of the market.

The report comes as the tech-heavy Nasdaq Composite Index finished the session up 1.5% to post its 29th all-time closing high of 2020. The index is up nearly 60% from its March 23 low, powered by a handful of large-capitalization companies, including Microsoft Corp. and Tesla as well as from the so-called FAANG names. The Dow Jones Industrial Average and the S&P 500 index are both up by at least 43% since their late-March nadirs, but that pace isn’t as brisk as the Nasdaq because of the latter’s proportion of tech-related shares.

A 10% selloff in the stock market is most likely, says expert who called March lows: ‘Something has to give’, MarketWatch, Aug 4