Morgan Stanley's Wilson warns: If the trade conflict is not resolved before November, the S&P 500 could drop to as low as 5,800 points

Morgan Stanley strategist Michael Wilson 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 a range of 5,800 to 6,027 points, down 8% to 11% from last Friday's closing price. He stated that given the high investor exposure and elevated valuation levels, the market is facing a pullback pressure. Last Friday, the escalation of trade “exceeded consensus expectations and also exceeded our expectations.”

Wilson has been known for his bearish outlook on the U.S. stock market in recent years, but he unexpectedly turned bullish on the outlook for U.S. stocks in 2025 last November, and he was one of the few strategists who correctly predicted a strong recovery after the sell-off triggered by tariffs in April. Now, he is showing signs of “flipping” again, reflecting the unpredictability of Trump's trade policies, which increases market uncertainty.

U.S. stocks suffered a sharp decline last Friday, with the S&P 500 index falling 2.7% and the Nasdaq 100 index plummeting 3.5%, ending a record bull market driven by bets on artificial intelligence. As of the time of writing, U.S. stock index futures are rising, with Nasdaq 100 futures up 2%, Dow futures up 1.05%, and S&P 500 futures up 1.5%.

Trade friction “unexpectedly” escalates, but the basic scenario remains optimistic

According to Global Times, a spokesperson for the Ministry of Commerce answered reporters' questions on recent Chinese economic and trade policy measures on the 12th. In response to the U.S. threatening to impose a 100% tariff on China under the pretext of “China's export controls on rare earths and other related items” and to implement export controls on all key software, the spokesperson stated: Threatening with high tariffs is not the correct way to interact with China.

In his research report, Wilson pointed out, “If the relevant trade uncertainties or volatility persist until early November, we may see a larger correction than most expect.” He emphasized that the main risks currently facing the market come from ongoing trade tensions and the resulting uncertainties.

Despite issuing a short-term warning, Wilson reiterated his basic scenario forecast that once trade tensions ease, the economy will resume a rolling recovery trend before 2026. He believes this argument is “strong enough to withstand this tactical trade escalation in the short term, as long as it can ultimately ease.”

Wilson's forecast is based on the assumption that the trade dispute will eventually be resolved, but he also warned investors to prepare for severe volatility in the short term. The current market environment shows that investor risk exposure is too high, and elevated valuation levels mean that any negative shock could trigger a larger adjustment