Morgan Stanley equity strategist Michael Wilson pointed out that although U.S. stock index futures saw a slight rebound due to President Trump softening his stance on tariffs against China, the market still faces risks and uncertainties from ongoing trade tensions and a slowdown in earnings estimate revisions. Investors should remain cautious in the short term. The S&P 500 has not yet fully recovered the losses incurred earlier this month due to Sino-U.S. tensions. Meanwhile, as earnings season unfolds in full swing, the momentum for earnings estimate revisions has noticeably weakened—specifically, the difference between the number of analyst upgrades and downgrades has fallen into negative territory. This deserves investors’ close attention.
Wilson emphasized in a recent report that before the market can confirm the complete elimination of near-term correction risks, several key signals must be observed: including more substantial progress between China and the U.S. in easing trade frictions, a stabilization in earnings per share forecasts, and improved market liquidity. Last week, he warned that if the Sino-U.S. trade dispute remains unresolved by the November deadline, U.S. stocks could face a decline of up to 11%. Although Wilson is cautious about the short-term outlook, he maintains his baseline view that the U.S. economy will gradually recover over the next 6 to 12 months. As one of the strategists consistently bullish on U.S. stocks this year, he accurately predicted the strong market rebound following the tariff-induced sell-off in April.
Beyond trade issues, the loan crises exposed by two U.S. regional banks have also sparked widespread concerns about cracks in the credit environment, contributing to market volatility late last week. The volatility index continues to hover near the critical level of 20, remaining in the high range seen over the past six months. Data from Deutsche Bank shows that overall positioning in U.S. stocks fell sharply last week, marking the largest weekly decline since the tariff-induced sell-off in April.
As earnings season officially progresses, corporate earnings fundamentals are showing some resilience. According to John Stoltzfus, chief investment strategist at Oppenheimer, the S&P 500 companies that have reported so far have seen an average profit growth of 16%, surpassing market expectations of 12%. Despite multiple risks, large U.S. companies continue to exceed earnings expectations and meet guidance, indicating that corporate fundamentals remain solid enough to support the stock market’s long-term upward momentum. Wilson also added that the current pullback in earnings revisions is in line with seasonal patterns and may only represent a brief pause within the broader uptrend.
