Morgan Stanley's Wilson warns: If trade conflicts cannot be resolved before November, the S&P 500 could fall as low as 5,800 points.

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Morgan Stanley strategist Michael Wilson has warned that if trade tensions are not resolved before November, the U.S. stock market faces a downside risk of up to 11%.

Wilson predicts that in a pessimistic scenario, the S&P 500 index could fall to the 5800–6027 range, a decline of 8% to 11% from last Friday’s closing price. He noted that given investors’ high exposures and elevated valuations, the market is facing correction pressure. Last Friday’s escalation in trade tensions “exceeded the consensus expectation, and also exceeded our expectations.”

Wilson has become known in recent years for his bearish views on U.S. stocks, but turned bullish last November on the U.S. equity outlook for 2025, and was one of the few strategists to correctly predict a strong rebound after the tariff-induced selloff in April. Now, his apparent “about-face” reflects the unpredictable nature of Trump’s trade policies, adding to market uncertainty.

U.S. stocks plunged last Friday, with the S&P 500 down 2.7% and the Nasdaq 100 tumbling 3.5%, ending the record-breaking bull run fueled by artificial intelligence bets. At the time of writing, futures for the three major U.S. indexes are rising, with Nasdaq 100 futures up 2%, Dow futures up 1.05%, and S&P 500 futures up 1.5%.

Trade frictions “unexpectedly” escalate, but base case remains optimistic

According to the Global Times, a spokesperson for China’s Ministry of Commerce responded to recent questions about relevant economic and trade policy measures on the 12th. In response to the U.S. threatening to impose a 100% tariff on China using “China’s export controls on rare earths and other related items” as a reason, as well as imposing export controls on all critical software, the spokesperson stated: Resorting to threats of high tariffs is not the right way to engage with China.

In a research note, Wilson pointed out, “If related trade uncertainty or volatility continues into early November, we could see a correction larger than most expect.” He emphasized that the main risk currently faced by the market is the ongoing trade tensions and the resulting uncertainty.

Despite his short-term warning, Wilson reiterated his base case forecast that once trade tensions ease, the economy will return to a rolling recovery by 2026. He believes this argument is “strong enough to withstand this kind of short-term tactical trade escalation, as long as it eventually eases.”

Wilson’s prediction is based on the assumption that the trade dispute will ultimately be resolved, but he also warned investors to prepare for severe short-term volatility. The current market environment shows that investors are highly exposed to risk, and elevated valuations mean any negative shock could trigger a larger correction.

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