Morgan Stanley keeps its year-end S&P 500 forecast at 8,000 but warns that semiconductor stocks could fall another 10% to 15%. Its strategists say funding concerns around AI spending are weighing on the sector, and they expect the correction to end in mid-November.
Morgan Stanley's strategists see support for the PHLX semiconductor index around 9,500, after it closed Friday at 10,779. Chief stock-market strategist Mike Wilson and his team still forecast the S&P 500 will end the year at 8,000, but their caution on chipmakers is growing.
Funding doubts hit semiconductors
Wilson's team says semiconductors and other capital expenditure beneficiaries are the "epicenter" of funding concerns. Doubts are creeping in about the timing and size of the revenue opportunity from artificial intelligence, according to the strategists.
The pressure shows up in credit markets. The five-year credit-default swaps for CoreWeave, an indebted neocloud provider, ended last week over 1,100, implying roughly a 50% chance of a debt default within five years.
A correction in its final stages
The strategists say semiconductors are in the last phase of a correction that should end in mid-November. Based on their technical analysis and a comparison to the once-hot silver market, however, the decline could run another 10% to 15% from current levels.
Last week, the Nasdaq Composite finished 0.7% lower. It is down more than 5% over the last two weeks.
Fed tolerance for tighter conditions
The strategists said that, ahead of this week's Federal Open Market Committee decision, the Fed has been comfortable with the tightening in financial markets that has hit both stock and bond markets. They said their quality call was fundamentally driven but has been exacerbated by tighter liquidity provisions while demand for liquidity has been rising.
Source: MarketWatch
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