Banking giant Morgan Stanley thinks the S&P 500 is close to carving a major market bottom after dropping below the 5,000-point level last week.
In a new CNBC interview, Mike Wilson, Morgan Stanley’s CIO and chief US equity strategist, says the stock market likely witnessed a capitulation event on April 7th after plunging to a new 2025 low of 4,835 points.
Capitulation happens when investors throw in the towel due to maximum fear and panic, leading to a sharp price drop. It suggests that a market bottom is in sight as sellers typically run out of assets to unload.
Says Wilson,
“I think we’ve seen the worst of the momentum. We’ve probably made the momentum low, the capitulatory low for this correction. Wherever it’s going to end up being – whether it’s 20%, 25% [lower] – I think it’s going to be a lot of testing.
The patient had a heart attack. Now the patient has to recover.”
Wilson also says the stock market priced in recession fears during last week’s corrective move. He now believes the S&P 500 will trade sideways in a wide range and will not resume its uptrend unless investors get a clear picture of where the economy is headed.
“[April 7th] was a clear capitulation day. That was the moment of recognition that, ‘Hey, we may be going over the edge here on the recession.’ And we priced a lot.
4,900 [to] 4,850 was a level that we’ve been searching for, and we found that level. We had a 1,000-point rally in two days. So now we’re stuck in a range, now the markets are going to do what they always do: they’re going to be volatile until we have clarity on how deep this growth slowdown is going to be and what does a recovery look like coming out of that.”
As of Tuesday’s close, the S&P 500 is trading at 5,386 points.
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