Wall Street just got a wake-up call.
Friday’s punishing sell-off reminded everyone of the fragility of current record-level optimism in the market, especially when politics and policy collide.
U.S. stocks took a monumental hiding on October 10 when President Donald Trump threatened an unnerving 100% tariff on Chinese imports, leading to the sharpest one-day drop since April. Consequently, the S&P 500 slid 2.7% to 6,552.51, with the Nasdaq tanking 3.6%, while the Dow lost 1.9%, wiping out nearly $2 trillion in market value.
The tech sector was front and center, taking its licks.
AMD dropped roughly 8% in value, while Nvidia and Amazon slipped 5% respectively, as China’s rare-earth export curbs resulted in fresh supply-chain worries with earnings season about to kick off.
Now, with the markets shrugging off last week’s jitters to start this week, Morgan Stanley analysts are warning that the turbulence could just be the beginning.
Led by Mike Wilson, the investment bank’s latest note lays out a shock scenario for the S&P 500, with the market’s next move likely to test just how sturdy the bull market currently is.
Morgan Stanley flags deeper pullback risk, even as stocks bounce back
So far on Oct. 13, U.S. stocks have been mounting a recovery, on the back of President Trump’s softer tone on trade, particularly with China, easing a lot of the fears that drove Oct. 10’s sharp selloff.
However, the relief bounce could prove fragile.
Morgan Stanley’s Chief U.S. Equity Strategist Mike Wilson and his team warned Oct. 13 that the S&P 500 may face a deeper correction if tensions between the U.S. and China don’t de-escalate soon.
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Wilson also notes that earnings-per-share revision breadth has weakened, which basically means that analysts are making fewer upgrades and more downgrades in their forecasts.
The team’s chart work laid out their potential downside target to 6,027, nearly 11% below recent highs, if the volatility persists into early November.
Given elevated systematic, retail, and hedge fund positioning, concerns around valuation, and unfavorable seasonals, trade escalation with China served as the catalyst for the weakest index-level performance we have seen since April.
Perhaps the more pronounced slide will significantly test support near 5,800, which is roughly 15% off the top.
Nevertheless, Morgan Stanley’s bullish bigger-picture thesis remains mostly intact. The firm argues that the bear market concluded in April and that a powerful new bull cycle is underway.
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Quick takeaways:
- Morgan Stanley’s Mike Wilson says trade tensions could potentially trigger an 11% to 15% S&P 500 correction if the choppiness remains elevated into November.
- The bank’s technical models show potential downside to 6,027-5,800.
- Wilson still views the pullback as more of a “healthy correction” within a broader economic expansion, which isn’t exactly the start of another bear phase.
Wall Street’s S&P 500 road map narrows into year-end
A softer tone from President Trump on trade offset some of Oct. 10’s damage.
By late morning Oct. 13, the S&P 500 was trading at around 6,633, up 1.2% on the day and off Friday’s lows. Year to date, it’s up over 11% on a price basis and even higher at 12.5% with dividends.
Nonetheless, the market strategists remain mostly divided on how 2025 is expected to close out.
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For instance, Goldman Sachs lifted its 2025 target to 6,800, led by resilient earnings, along with a friendlier Fed path. Bank of America remains even more bullish at 7,200, arguing that bottom-line strength, not multiples, will drive the next leg higher.
UBS sits at around 6,600, efficiently balancing tensions against valuation strain. JPMorgan remains cautious as well, guiding toward 6,000 as positioning normalizes, while Evercore ISI sees 6,250 for 2025, flagging upside potential if the AI trade starts overheating.
Hence, for now, the tape leans mostly constructive, but the run to December depends mostly on policy headlines and earnings math. The bulls need stability, but the bears will chase any crack in guidance or geopolitics.
