The ongoing correction across U.S. equity markets may be approaching its conclusion, according to a recent assessment by Morgan Stanley’s investment strategy team cited by Yahoo Finance. Chief equity strategist Michael Wilson noted that since June, the stock market has been recalibrating to a new phase of the economic cycle, pressured by Federal Reserve balance sheet deceleration, constrained liquidity, and escalating political uncertainty leading into the U.S. midterm elections.
Despite recent volatility, Morgan Stanley left its baseline year-end projection for the S&P 500 unchanged at 8,000 points. However, Wilson cautioned that near-term downside risks remain elevated, indicating that the index—which closed Friday at 7,580 points—could temporarily retreat toward 7,100–7,200 points (just below its 200-day moving volatility average) before establishing firm footing.
Morgan Stanley identified three critical catalysts that will govern the conclusion of this market reset:

1. The AI Sector Shakeout: Scrutiny surrounding the artificial intelligence boom is poised to intensify. Emerging headwinds—such as high infrastructure debt financing costs, capital availability, regulatory safety concerns, and localized backlash against mega data center projects—are expected to bring speculative valuations down to sustainable levels.
2. Resolution of Midterm Election Risk: The November 3 midterm elections will clear a substantial cloud of domestic political uncertainty. Wilson highlighted historical precedent showing that midterm cycles frequently suppress investor sentiment in the immediate lead-up and days following the vote, yet consistently yield very strong returns over the subsequent 6-to-12-month horizon.
3. Liquidity Contraction and Credit Pressures: Rate hikes, balance sheet runoff, and rising energy prices have significantly tightened financial conditions. “Among all concerns, we think liquidity is the biggest risk and the catalyst for a final low,” Wilson emphasized.

On the policy front, Federal Reserve Chairman Kevin Warsh took office determined to restore inflation to the central bank’s 2% benchmark, overseeing one rate hike since his appointment. Concurrently, benchmark long-term U.S. Treasury yields have surged by more than 100 basis points since February, driving borrowing costs substantially higher across credit markets. Wilson concluded that while this financial squeeze will temper growth and inflation, any severe stock market slide could prompt the Fed to pivot or pause its hawkish posture. Such a policy shift would provide immediate tailwinds for asset prices, even if it prolongs the central bank’s inflation-targeting timeline.