Morgan Stanley expects the US equity market correction to enter its final stages, although investors may face another bout of volatility before stocks recover. Mike Wilson, the investment bank's chief investment officer and chief US equity strategist, sees further downside for semiconductor stocks as investors assess artificial intelligence (AI) spending, tightening financial conditions and geopolitical risks.
The outlook could have implications for Indian equities, where the Nifty 50 has underperformed US stocks this year and foreign investors have pulled out significant amounts of capital. However, any recovery in Indian markets will also depend on domestic earnings, crude oil prices and valuations.
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US Outlook
In Morgan Stanley's Thoughts on the Market podcast, titled The Next Stage of the Market Correction, Wilson said roughly 60% of Russell 3000 stocks had fallen more than 20% since June. Losses have been particularly sharp in semiconductors, autos, consumer cyclicals and capital goods.
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He identified 7,100–7,200 as a potential support zone for the S&P 500 if the index falls further. He also expects the semiconductor index to decline another 10–15% into mid-November as investors question the returns on AI investments and whether credit markets can finance planned spending.
Wilson identified three risks that could prolong the correction: AI-related spending and financing concerns, uncertainty surrounding the US midterm elections, and tighter financial conditions. He said the correction was nearing its final stages but cautioned that sentiment had not reached the extremes that typically mark a durable market low.
India Impact
The Nifty 50 has fallen about 12.9% in 2026 through Oct. 27. Historically, a stabilisation in US equities could improve global risk appetite and encourage investors to reassess emerging markets. However, foreign portfolio investor outflows, elevated crude oil prices and concerns about earnings could limit the benefit for Indian stocks.
Foreign investors withdrew Rs 48,056 crore from Indian equities in October during the period reported, taking net outflows for 2026 to Rs 3.08 lakh crore, according to CDSL data.
Valuations offer a mixed picture. MSCI India traded at around 18.5 times its 12-month forward earnings in late October, compared with 18.8 times for MSCI US and 8.7 times for MSCI Emerging Markets. India's premium over emerging-market peers could continue to influence foreign investors' allocation decisions.
Key Risks
Wilson said higher interest rates, slower balance-sheet growth, stronger demand for capital and rising energy prices had tightened financial conditions. If the pressure creates funding stress or destabilises credit markets, the Federal Reserve and US Treasury have tools to respond, he said.
For Indian markets, the key indicators will be whether US equities stabilise, foreign selling eases and global financial conditions improve. Wilson's outlook is not a direct forecast for the Nifty or Sensex, and any recovery will also depend on India's domestic economic and earnings outlook.
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