The S&P 500's correction is 'getting closer to its ending,' says Morgan Stanley's Mike Wilson

By Jules Rimmer

Accelerating earnings growth distinguishes this cycle from others when the oil price spiked

Mike Wilson said the S&P 500 has adjusted sufficiently to reflect the elevated price of oil.

Morgan Stanley's chief U.S. equity strategist reckons the S&P 500's SPX correction is not far from over, and, citing important differences to other oil price shock-induced drawdowns, he doesn't sense the complacency in the market that other analysts have.

Since its 2025 high, the S&P 500's forward price-earnings ratio has compressed 17%, Wilson wrote in his weekly warm-up research note. That's comparable to historical corrections in the absence of a recession or a Fed-hiking cycle. Half of the Russell 3000 RUA have fallen by at least a fifth from their 52-week highs.

Moreover, Wilson said that the market has discounted the jump in oil prices - so far, at least. Morgan Stanley's commodity strategists have noted "ongoing constraints." They predicted that crude (BRN00 )would reach $110 a barrel before declining to $80 a barrel.

Wilson acknowledged a greater risk to international markets, owing to their heavy dependence on imported energy.

Based on prior oil-price shocks, Wilson drew some important distinctions this time round: Earnings growth for the market is accelerating (as opposed to decelerating or turning negative), this shift in oil prices has been less dramatic than previous versions, and the chances of a resumption of tanker traffic through the Strait of Hormuz are higher than those of a U.S. recession.

This period looks very different than prior episodes of an oil-price spike. The oil move is more modest thus far.

Importantly, however, one risk is a tighter monetary policy, Wilson said. He found the inverse correlation between rates and stocks is deeply negative at negative 0.5 - and the market's rate sensitivity is as high as it's been in several years. The U.S. Treasury market is now partially discounting a rate increase in 2026, although Morgan Stanley's economists factored a few cuts into their models.

Wilson said that the U.S. 10-year yield BX:TMUBMUSD10Y is approaching 4.5%, and it was this level last year that persuaded the White House to pivot and backtrack on tariffs.

-Jules Rimmer

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03-30-26 0742ET