Several major Wall Street firms are advising clients to brace for a stock market pullback, citing concerns that high equity valuations are colliding with deteriorating economic data. Morgan Stanley, Deutsche Bank, and Evercore ISI all issued warnings on Monday, suggesting the S&P 500 Index is poised for a decline in the coming weeks and months. These predictions follow a significant rally from April’s lows, which has propelled the index to unprecedented levels.
Morgan Stanley strategist Mike Wilson anticipates a correction of up to 10 per cent this quarter, attributing it to the impact of tariffs on consumers and corporate balance sheets. Evercore’s Julian Emanuel foresees a potentially larger drop, estimating a decline of as much as 15 per cent. Deutsche Bank’s team, led by Parag Thatte, points out that a minor equity drawdown is overdue, given the market’s sustained upward trajectory over the past three months.
The S&P 500’s 14-day relative strength index (RSI) surpassed 76 last week, reaching its highest point since July 2024, just before the brief peak in US stocks last summer. This level is above the 70 threshold that market technicians typically regard as a sign of an overbought market. Simultaneously, options trading data indicates growing apprehension about a potential downturn, as hedging against a market rout becomes increasingly expensive. The SPDR S&P 500 ETF Trust (SPY) is an exchange-traded fund that tracks the S&P 500 index, providing investors with broad market exposure.
Despite these near-term concerns, the analysts temper their warnings with a bullish recommendation: investors should capitalise on any dip in the market. The cost of contracts protecting against a 10 per cent decline in the SPDR S&P 500 ETF Trust (SPY) over the next 60 days is elevated, reflecting a heightened sense of caution.
