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Morgan Stanley says S&P 500 could drop another 8%

Wilson’s team sees more downside for stocks amid earnings revisions and tariff pressures, pointing to a new S&P 500 support at 4,700.

byKerem Gülen
April 7, 2025
in Finance, News

Morgan Stanley strategists, led by Mike Wilson, are advising investors to prepare for a further 7% to 8% decline in the S&P 500, setting the next support level at 4,700, citing valuation support near the 200-week moving average, according to MarketWatch.

Last week, the S&P 500 closed at 5,074.08, marking a 9% drop—the largest since March 2020—following President Trump’s tariff announcements; this prompted Morgan Stanley to revise its support level from 5,100 amidst ongoing selling pressure, with futures indicating significant losses for both the S&P 500 and the Dow Jones Industrial Average.

Wilson’s team pointed out that many stocks had already been underperforming, even before mid-February, which they attribute to a higher number of analysts issuing negative earnings revisions. They anticipate that tariffs will exacerbate this trend by negatively impacting confidence and sentiment.

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The strategists highlighted that cyclical stocks have significantly lagged defensive stocks, underperforming by over 40% over the past year, a trend that emerged primarily between April and September, signaling long-standing concerns about economic growth and supporting a preference for large-cap quality stocks. They noted that the recent sell-off in defensive stocks suggests potential forced selling and exhaustion in the correction.

Morgan Stanley is reinforcing its preference for high-quality, large-cap, and defensive stocks, adding American Tower REIT to their Fresh Money Buy list and upgrading it to overweight, replacing Eaton Corp. They view American Tower as a defensive asset with growth potential, offering stability as interest rates potentially decrease.

Other companies on the Fresh Money Buy list include CenterPoint Energy, Coca-Cola, Colgate-Palmolive, McDonald’s, Northrop Grumman, Progressive Corp., Public Service Enterprise, and Walmart.

The Morgan Stanley team anticipates continued underperformance from small-cap stocks due to their greater vulnerability to economic uncertainties and weakening earnings per share estimates. They advise against bottom picking in the small-cap sector for now, while noting potentially “rich” opportunities within high-quality names, like financial services, software, telecom services, biotech, and household and personal products.


Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.

Featured image credit

Tags: morgan stanleystock

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