Wall Street's Bearish Outlook for Q3: "S&P 500 to Adjust Down 10% Until Presidential Election"

US Presidential Election, Corporate Earnings, and Interest Rate Uncertainty Burden
Stock Market Rally Relies on Performance of Few Companies
Focus on Individual Stocks with Strong Fundamentals Over Indexes

As the S&P 500 and Nasdaq indices, representative stock indices of the United States, continue their record-breaking rally, bearish views predicting a third-quarter correction in the U.S. stock market are spreading on Wall Street. Analysts believe that uncertainties surrounding the upcoming U.S. presidential election, corporate earnings, and the Federal Reserve's (Fed) interest rate direction will weigh on the market.

Mike Wilson, Chief Investment Officer (CIO) of Morgan Stanley, said in an interview with Bloomberg TV on the 8th (local time), "(The U.S. stock market) will face difficulties in the third quarter," adding, "It is highly likely that the S&P 500 will undergo about a 10% correction from now until the U.S. presidential election." He further noted, "The likelihood of the stock market continuing its rally from now until the end of the year is very low," estimating only about a 25% chance that the S&P 500 will close the year above its current level.

CIO Wilson pointed to uncertainties surrounding the U.S. presidential election and the timing of the Fed's interest rate cuts as the causes of the bearish outlook for the U.S. stock market. He also emphasized the high possibility that U.S. companies' pricing power will decline, leading to disappointing earnings. He explained, "The approximately 17% rise in the S&P 500 this year is thanks to a small number of companies," adding, "Most companies have not delivered good earnings." This week, U.S. companies will begin releasing their second-quarter earnings reports, starting with Wall Street investment banks.

On Wall Street, the number of analysts adopting a cautious stance for the third quarter is increasing. According to Bloomberg News on the same day, Scott Rubner, equity strategy specialist at Goldman Sachs, warned, "If corporate earnings (for the second quarter) are disappointing, the U.S. stock market could face a painful two weeks starting in August." Andrew Tyler, head of U.S. market intelligence, stated, "Recent weakening U.S. economic data has somewhat reduced confidence in the existing bullish outlook for the stock market." Scott Kronert, global head of ETF research at Citigroup, has also repeatedly warned about the possibility of a U.S. stock market correction.

However, CIO Wilson explained that even if the U.S. stock market experiences a 10% correction, it would not be a decline level that investors should be overly concerned about. He diagnosed that a healthy correction could become a new upward momentum. He suggested focusing on individual stocks rather than indices and recommended seeking high-quality large-cap and growth stocks with strong balance sheets and the ability to generate consistent earnings.

Wilson is one of Wall Street's prominent bears. At the end of last month, he set the S&P 500 target for June 2025 at 5400, a 20% upward revision from his previous forecast of 4500.

Meanwhile, on the same day at the New York Stock Exchange (NYSE), the large-cap-focused S&P 500 index closed at a record high of 5572.85, up 5.66 points (0.1%) from the previous trading day. The tech-heavy Nasdaq index also closed at a new all-time high of 18,403.74, up 50.98 points (0.28%).

This content was produced with the assistance of AI translation services.