Morgan Stanley loudly declares the US stock market correction is nearing its end! It sticks to its year-end S&P target of 8,000 points and identifies three major catalysts for a counteroffensive.

Michael Wilson, Chief U.S. Equity Strategist at Morgan Stanley, emphasized in his latest research report that the firm's latest judgment is that the internal correction in the U.S. stock market that began in June has entered its final tail phase, though the index may still experience one last leg down; after the heavy pressure of AI financing costs, the midterm elections, and the outlook for the Federal Reserve's monetary liquidity policy gradually become clearer, the market is expected to usher in a major year-end rally. In the view of top strategists at Wall Street financial giants such as Morgan Stanley, the logic of contrarian position-building and buying on dips in the global AI computing power theme and technology stocks broadly, which have recently been hit hard by selling, is taking shape, but whether technology can achieve a bottoming rebound and a subsequent sustained uptrend has entered a dual verification period of the year-end earnings disclosure season and AI financing conditions. Just as Morgan Stanley continues to be bullish on the stock market, recent market action has precisely displayed this semiconductor-led technology stock rebound tension as well as the capital fragmentation and divergence revealed by the corporate credit bond market. The Philadelphia Semiconductor Index rose 0.44% on October 23 and further rose 2.82% on October 26, but its close of 11,083.5 points was still about 24.27% below the closing high on June 22; the Nasdaq 100 Index, known as the "bellwether of technology stocks," and the Nasdaq Composite Index, which includes more technology stock constituents, rose 1.09% and about 0.83% respectively on October 26, still about 6.25% and 5.18% below their closing highs on October 6. A strong short-term rebound in U.S. technology stocks has already appeared, but the deep correction previously accumulated in the semiconductor sector, which accounts for a major share of technology stock market capitalization, is far from being repaired. The credit market reveals another negative constraining force facing the AI computing power trading theme. The yield on CoreWeave's 2031 maturity bonds in the secondary market reached 15.76% on October 22, indicating that investors are demanding higher risk premiums and compensation for the financing dependence and debt repayment risks associated with its AI computing infrastructure. During intraday trading on October 26, the five-year Credit Default Swap (CDS) spread of CoreWeave (CRWV.US), the stock at the very core of the "AI computing power selloff storm" and the "AI bubble burst narrative," was about 1,148 basis points; under a 40% recovery rate assumption, the model estimates a corresponding five-year cumulative implied default probability of about 62%this indicator also importantly includes a credit risk premium and cannot be directly equated with the company's actual default probability over the next five years. Over the same period, the five-year CDS of Meta, Alphabet, and Microsoft Corporation were about 121, 83, and 55 basis points respectively, higher than 98, 73, and 52 basis points on September 25highlighting a broad rise in the risk compensation demanded by the credit market for corporate credit bonds, but with significant differences in the pressure borne by different companies. In recent years, the five-year CDS of Japanese investment giant SoftBank, which has bet almost entirely on AI, rose to 432 basis points on October 20, the highest in nearly four years; the coupons on its three tranches of U.S. dollar bonds issued in September reached 8.625%, 9.25%, and 9.75% respectively. Together, these data show that whether the explosive expansion demand related to AI computing resources can be converted into industry chain revenue increasingly depends on whether customers can continue to obtain funding and whether project cash returns can cover financing costs. High-rated technology giants are mainly bearing the pressure of more expensive new financing and valuation discounting, while new cloud vendors that rely on external capital also face the direct constraint of narrowing financing channels. Morgan Stanley's Wilson outlines the three core catalysts for a year-end stock market rally Morgan Stanley's Michael Wilson said the bearish and pessimistic sentiment correction in the U.S. stock market that began in June is entering its final wrap-up phase. The digestion of three key uncertaintiesAI-related capital issues (AIQ, AIEQ), midterm election uncertainty, and changes in Federal Reserve liquidityis expected to help the market form a bottom and lay a major foundation for the S&P 500 Index to rally to a record level near 8,000 points by year-end. This transition of the economic cycle to its mid-cycle phase coincides with the peak in the rate of change in the breadth of earnings forecast revisions; previously, the "rolling recessions" experienced in succession across industries bottomed around last year's "Liberation Day." The cycle transition has already caused significant damage to individual stocks beneath the index surface. As investors shift toward higher-quality large-cap stocks with stronger fundamentals, new cloud vendors, financials, cyclical consumer themes, and early-cycle sectors such as autos have clearly underperformed. Wilson wrote in a report published on Monday that since the start of this transition, about 60% of constituents in the Russell 3000 Index (IWV.US), which focuses on U.S. small- and mid-cap stocks, have fallen more than 20%. Semiconductors have been hit hardest, with 96% of stocks in the sector experiencing drawdowns of more than 20%. The quality factor (QUAL) has continued to lead during this transition and is now breaking out. Wilson noted that despite the resilience of the S&P 500 Index, market breadth has begun to improve, indicating that as investors gradually digest the mid-cycle transition, index performance and internal market conditions are "converging toward the middle." Wilson said the tactical downside target remains 7,1007,200 points, which implies the index could briefly fall below its 200-day moving average. At the time of writing, the S&P 500 Index was around 7,688 points, less than 2% below the all-time high set in early October. The strategist proposed three catalysts that could signal the end of the correction. First, investors' widespread concerns and panicked investment cries around AI returns on capital, funding costs and availability, safety issues, and NIMBY sentimentlocal communities opposing the construction of nearby data centersare expected to become concentrated over the next three to four weeks. Second, midterm elections typically create initial headwinds for the market, but strong returns often follow in the six to twelve months after the election. Historically, the S&P 500 Index has averaged a gain of about 17% in the twelve months after midterm elections. Third, and most critically, Wilson believes liquidity constitutes the biggest risk and catalyst for the market to form its final low. Federal Reserve Chair Warsh has already slowed the pace of balance sheet expansion by about half, but with inflation still above target, interest rate policy remains behind the curve. Financial conditions have already tightened significantly, to a degree comparable to 2018 and close to the level during the active policy tightening period of 2022. Morgan Stanley's composite sentiment indicator is currently at a neutral level, and third-quarter earnings are expected to grow 27% year over year. On this basis, Wilson maintains his judgment that as these key uncertainties gradually become clearer over the coming weeks, attractive buying opportunities should emerge in the market. Before the S&P 500 breaks above 8,000 points, it must pass three gates: whether funding can continue, whether the election can become clear, and whether liquidity can turn Based on the S&P 500's October 26 close of 7,676.77 points, 7,1007,200 points implies potential downside of about 6.2%7.5%, while 8,000 points corresponds to upside of about 4.2%; if the index first falls to that support zone and then recovers to 8,000 points, the gain would reach about 11.1%12.7%. This difference means that the investment opportunity in Wilson's judgment is highly dependent on the entry point and on whether the earnings base can remain stable after risks are released. The first gate is whether the market can smoothly absorb the supply of AI financing. The Morgan Stanley analyst team led by Wilson has long focused on returns on capital, funding costs and availability, as well as safety controversies and community opposition to data center construction. He further noted in an October 26 media podcast that additional financing still needs to be absorbed by the market in the coming weeks, weaker-quality companies may continue to face widening spreads and falling share prices, and he expects the semiconductor index could fall another 10%15% by mid-November. This shows that his year-end bullish judgment still includes a difficult period of risk digestion. From the perspective of industry chain mechanisms, the completion of financing can increase the probability that purchases of GPUs/TPUs/ASICs, storage, network infrastructure, data center optical interconnects, high-performance CPU equipment, and power chain facilities are fulfilled, but new equity and debt issuance also needs to absorb market capital. A larger financing scale can support construction, while financing prices and subsequent cash flows determine how long such expansion can last. Therefore, the key verification for a sustained counteroffensive in the global stock market's AI computing power theme and semiconductor sector is that after customer budgets obtain funding support, orders, deliveries, and collections can be continuously fulfilled. The second gate is the digestion of election uncertainty. Wilson believes that strong six-to-twelve-month returns typically follow midterm elections, but the correction may still extend for days or even weeks after voting ends. The logic is that a settled election result helps investors reassess the regulatory, fiscal, and project construction environment; what truly affects pricing is how policy risk changes, not the election date itself. The third gate, and the most important one, is whether liquidity pressure prompts a policy response. U.S. long-end rates have risen by more than 100 basis points since February, and the Federal Reserve has raised rates only once since Warsh took office, yet the market has already completed a considerable degree of tightening through long-end rates and financing costs. If this tightening further hits growth or the credit market, policy adjustment may support asset prices, even if it takes longer for inflation to return to 2%. Wilson's latest research report gives the corresponding investment strategyinvestors should prioritize examining cash flow, balance sheets, and earnings quality at this stage, and look for windows to increase exposure after risks are concentratedly released; Wilson himself is particularly focused on high-quality capital goods companies that have already corrected significantly.