Morgan Stanley: The Recent Stock Market Correction Is Temporary

Ever since the turmoil earlier this year, the U.S. stocks markets have been on a relentless upward march, with both the S&P 500 and the Nasdaq making new all-time highs.

However, since the start of September, both of these benchmark indices have undergone a considerable pullback, prompting some speculation that the top of the market might have already been reached.

A recent research note from Morgan Stanley’s (NYSE:MS) equity department discussed whether this correction should cause investors to be worried about the state of the market.

Just a bump in the road

Morgan Stanley’s equity research department, led by Chief Equity Strategist Mike Wilson, caused some skepticism earlier this year when it announced that the March financial crash would mark the beginning of a new bull market, but so far, it’s hard to find fault with their thesis. Wilson sees the September slowdown as a normal bull market pullback.

To support this point of view, the note points to the fact that the stocks that have led the recent pullback are the very same stocks that benefited the most from the imposition of lockdowns – the technology sector. The Nasdaq is currently trading down around 7% from its recent all-time high. It is therefore perhaps unsurprising that the most expensive stocks have experienced the biggest valuation corrections.

If Wilson is right that this is indeed just a bump in the road for an already expensive market, then that introduces a difficult conundrum for investors: should they take the plunge to avoid missing out on future gains, or should they wait for a better entry point?

Political risk continues to weigh heavily on these discussions, as both the passage of a congressional fiscal deal and the outcome of the U.S. presidential election are currently big uncertainties. The note recommends that

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