On November 9, strategists at Morgan Stanley, RBC Capital Markets and JPMorgan said the recent sharp selloff in US stocks may be nearing its end, and the market is expected to stabilize and rebound before the end of the year. However, whether corporate earnings expectations can stabilize remains the key to supporting a recovery in equity valuations.
Morgan Stanley Chief US Equity Strategist Michael Wilson believes this round of adjustment is entering its final stage. As the S&P 500 catches down and gradually reflects the earlier weak performance of individual stocks, the index could fall further into the 7100 to 7300 range. He expects the market may retest last week's lows and then stage a year-end rebound, and he recommends that investors add to high-quality cyclical stocks whose earnings expectations continue to be revised upward.
RBC strategist Lori Calvasina also believes that market sentiment and valuation indicators suggest US stocks may stabilize soon. A survey by the American Association of Individual Investors (AAII) shows that the gap between bullish and bearish individual investors over the past four weeks has fallen to a level that historically has usually corresponded to an average gain of 11% over the following 12 months.
Calvasina said institutional investors are currently showing more shock at the market decline rather than panic selling. However, she stressed that corporate earnings expectations still need to stabilize in order to provide support for a valuation rebound.
Regarding market concerns about the risk of a slowdown in AI infrastructure investment, Wilson estimates that data center-related spending accounts for only about 5% of total revenue for S&P 500 constituents in 2027. Therefore, even if some data center projects are delayed after the US midterm elections, the direct impact on overall S&P 500 corporate earnings would be relatively limited.