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Traders should brace for a correction in the stock market as uncertainty swirls around the U.S. presidential campaign, corporate earnings, and Federal Reserve policy, according to Morgan Stanley\u2019s Mike Wilson.<\/p>\n
\u201cI think the chance of a 10% correction is highly likely sometime between now and the election,\u201d Wilson said in an interview with Bloomberg Television Monday. The third quarter is \u201cgoing to be choppy.\u201d<\/p>\n
The S&P 500 Index opened the week at all-time highs and will hit its 35th closing record this year if it closes Monday in the green. Expectations that the Fed will cut rates twice this year and excitement around artificial intelligence have propelled the benchmark to a 17% gain this year after its 24% surge in 2023. Indeed, even a long-time bear like Wilson has\u00a0tempered<\/a>\u00a0his tone from the past few years.<\/p>\n But a rising number of Wall Street pros have begun to grow cautious heading into the third quarter, a seasonally turbulent period, particularly amid signs the rally is overheating.\u00a0<\/p>\n Goldman Sachs<\/a> Group Inc.\u2019s Scott Rubner said Monday that he\u2019s modeling a painful two-week stretch starting in August if corporate earnings disappoint. Andrew Tyler at JPMorgan Chase<\/a> & Co.\u2019s trading desk said he\u2019s bullish with \u201cslightly less conviction\u201d from recent weakening economic data. And Citigroup<\/a> Inc.\u2019s Scott Chronert has sounded the alarm on a potential pullback.\u00a0<\/p>\n \u201cYour likelihood of upside from now until year end is very low, much lower than normal,\u201d Morgan Stanley\u2019s Wilson said, placing the odds of stock prices closing the year higher than they are now at 20% to 25%.<\/p>\n However, Wilson isn\u2019t particularly concerned about a pullback. Rather, he said it could create opportunities for investors to buy in since valuations are currently \u201cunexciting\u201d after the S&P 500\u2019s double-digit gain this year. At the moment, the best way to play the stock market is through individual stocks rather than indexes, he said.<\/p>\n Wilson and his team continue to recommend high-quality growth names, and quality in general: large-caps, companies with good balance sheets, and those that can deliver on earnings. Momentum will continue, but the problem is it\u2019s hard to find shares in those categories that are cheap, he said.<\/p>\n \u201cIf they were to come in 10%, then we\u2019d probably get interested again,\u201d he said.<\/p>\n<\/div>\nSubscribe to the CEO Daily newsletter to get global CEO perspectives on the biggest stories in business. Sign up for free<\/a>.<\/div>\n<\/div>\n