Morgan Stanley Says the Market Correction Is in Its 'Final Innings' — and the Midterms Could Clear the Air
Strategists led by Michael Wilson argue the slump that began in June is nearly spent: 60 percent of Russell 3000 stocks are already down at least 20 percent, large caps have typically gained 15 percent in the six months after elections, and a Democratic sweep, they say, is already priced in.
The correction that has hung over Wall Street since June is in its "final innings," Morgan Stanley strategists said on Monday, and Tuesday's midterm elections should help remove a major part of the overhang that has kept investors on the sidelines. The call, led by the firm's chief US equity strategist Michael Wilson and reported by Reuters, is the most direct argument yet from a major bank that the slump is nearly spent.
The strategists' evidence is breadth, or rather its absence. The S&P 500 is catching down to weaker market breadth, Wilson said, which is typically the last stage of a slump — and the damage underneath the index is already deep: 60 percent of Russell 3000 stocks have seen at least a 20 percent correction since June. Last month the tech-heavy Nasdaq-100 shed trillions of dollars in value and stood on the brink of correction territory, as the risk of an AI-earnings-led selloff kept markets on edge.
"We expect near-term clearing events to provide an attractive opportunity to add risk to quality cyclicals that have de-rated as we head into 2027," the strategists wrote. History is on the call's side, by their reading: large-cap stocks have typically gained 15 percent in the six months following election results, recent earnings reinforce the signs that the correction is nearing its end, and a Democratic sweep — the outcome prediction markets price as most likely — is, in their words, already priced in by investors.
Wilson was equally clear about what the call does not promise. He does not expect the Federal Reserve to rush toward interest rate cuts or add support; the relief he points to would come instead from the Treasury spending down its cash pile, from about $1.05 trillion to about $850 billion by year-end. And the bigger risk, the strategists said, is what comes after the vote — the potential of renewed military escalation with Iran or new tariffs. Investors, Wilson added, are no longer overlooking free-cash-flow shortfalls as they often did earlier in the cycle, "consistent with a more typical mid- to late cycle environment where earnings durability and cash conversion matter more."
For New York's market, the argument lands on the eve of the two events the overnight file is waiting on: the vote itself, and the Treasury's refunding announcement that follows it. If Morgan Stanley is right, the clearing of those two events — not a rate cut, not a rescue — is what ends the correction.
