Morgan Stanley Strategist Warns of 5-7% Stock Market Correction in Third Quarter

Morgan Stanley's chief US equity strategist, Mike Wilson, has expressed concerns about the stock market's performance in the third quarter of the year. According to Wilson, the upcoming quarter is expected to be a period of increased risk, which could result in a temporary decline in stock prices. This outlook is based on the potential impact of tariffs and other economic factors that could influence market performance during this period.

Wilson predicts that the third quarter, often referred to as the 'quarter of risk,' could witness a moderate impact of tariffs on the cost of goods sold. He anticipates a 5-7% correction in the stock market, although some companies may experience a more significant decline. However, Wilson believes that the markets are already considering this impact as temporary and that earnings growth in 2026 is looking more promising.

Despite the potential downturn, Wilson sees this as an opportunity for the market to pull back and create buy opportunities. He describes the current market environment as the beginning of a new bull market, characterized by explosive growth and accelerating rates of change. While he acknowledges the possibility of another surprise or test that could cause a more severe correction, Wilson does not foresee a decline of more than 5-10% given the current landscape.

Wilson's analysis underscores the importance of cautious investment strategies during the third quarter. Investors are advised to closely monitor economic indicators and market trends to navigate the potential risks effectively. By preparing for potential market fluctuations, investors can better position themselves to weather the storm and capitalize on opportunities that may arise.