Morgan Stanley's Wilson sees S&P 500 dropping 7% on energy, bond risks

September 21, 2026 at 01:23 PM2 min

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Morgan Stanley strategist Michael Wilson said the S&P 500 could drop as much as 7% to 7,100 if financial conditions tighten further or energy prices rise materially. He still expects a year-end rally to 8,000 points on strong corporate earnings. The index has drifted since mid-August with the 10-year Treasury yield near 5% and WTI crude up 43% from a July low.

Key Facts

Morgan Stanley's Michael Wilson said the S&P 500 could trade as low as 7,100, implying a 7% drop from Friday's close.
Wilson expects a year-end rally to 8,000 points, a gain of almost 5% from current levels.
The 10-year Treasury yield is hovering around 5%, and WTI crude remains 43% higher than a July low.
The Federal Reserve hiked rates last week for the first time in three years.
Bank of America warned investor positioning is still too bullish as profit growth slows.

Valuation Correction Risk

Morgan Stanley strategists led by Michael Wilson said US equities are vulnerable to a further increase in energy prices and bond market volatility. S&P 500 valuations have declined in the past four months to the lowest since March, even as strong corporate earnings have helped stock prices withstand higher bond yields. Wilson wrote that if the valuation correction worsens due to tighter financial conditions or materially higher energy prices, the S&P 500 could trade as low as 7,100 before the bull market resumes into year end. That level implies a drop of 7% from the index's Friday close.

Year-End Outlook

Wilson expects volatility to pick up into November's midterm elections, but ultimately sees a robust outlook for corporate earnings driving a year-end rally toward his target of 8,000 points. That would represent a gain of almost 5% from current levels. The S&P 500 has drifted since hitting a record in mid-August on worries about the inflation outlook with the 10-year Treasury yield hovering around 5%. West Texas Intermediate crude prices have retreated below $100 a barrel, but remain 43% higher than a July low. The Federal Reserve hiked rates last week for the first time in three years, yet the central bank's resolve to fight inflation has kept investors bullish.

Market Strategist Views

The benchmark stock index is only about 2% below its peak, with prices supported by one of the best earnings seasons on record in the second quarter. Market strategists including at JPMorgan Chase & Co. and Goldman Sachs Group Inc. have also said stocks should continue to benefit from healthy earnings. The team at Bank of America Corp. warned investor positioning is still too bullish as profit growth slows. Morgan Stanley's Wilson has been among the bullish voices on US equities this year, reiterating a recommendation for large-cap high-quality stocks and noting momentum in services-oriented and asset-light industries.