Catenaa, Monday, October 13, 2025- US stocks are at risk of sinking as much as 11% if trade tensions between the US and China aren’t resolved before a November deadline, Morgan Stanley said.
Michael Wilson, the bank’s Chief US Equity Strategist, said the market was poised for a pullback given elevated investor exposure and high valuations, while Friday’s trade-war escalation “was unexpected by the consensus, and us.”
Wilson has maintained a bullish view on US stocks this year and was among the few strategists who correctly predicted a robust recovery following April’s tariffs-fueled selloff.
“If associated trade uncertainty/volatility continues into early November, we could see a larger correction than most are expecting,” Wilson wrote in a note.
He forecast that the S&P 500 Index could drop to between 6,027 and 5,800 points in a bear-case scenario. That implies a selloff of between 8% and 11% from Friday’s close.
US equities were roiled on Friday after Trump threatened an additional 100% tariff on China as well as export controls on critical software beginning on November 01.
The S&P 500 sank 2.7%, while the Nasdaq 100 slumped 3.5%, halting a record-breaking bull run that was fueled by bets on artificial intelligence.
Stocks rebounded on Monday as the White House signaled openness to a deal with Beijing, with S&P climbing by over 1% and Nasdaq up by 1.7%.
Wilson reiterated in the note that his base case is for a rolling economic recovery to resume in 2026 once trade tensions subside.
This thesis “is strong enough to withstand this type of tactical trade escalation in the near-term as long as it eventually de-escalates,” he said.
