S&P 500 Could Hit 8,300 By May 2027, Says Morgan Stanley Investment Chief Predicting ‘Final Innings’ Of Stock Market Correction
In an interview with CNBC, Morgan Stanley’s chief investment officer said he expects market volatility to persist for another two to three weeks.
- Amato sees the S&P 500 reaching 8,300 by May 2027 and 8,500 by mid-2027.
- He expects market breadth to improve after the correction, with gains spreading beyond AI infrastructure stocks.
- According to him, widening credit spreads in parts of the AI sector pose a bigger risk than rising Treasury yields.
Morgan Stanley’s investment chief, Joe Amato, said on Tuesday the stock market’s recent correction is nearing its end, though investors may have to endure another two to three weeks of volatility before equities resume their advance.
“I think we’re in the final innings of this, but we still have to get through the next probably two to three weeks,” Amato said in an interview with CNBC. “I think we can still finish the year pretty strongly and definitely into next year.”
He pointed to several pressures that have weighed on stocks since June, including the unwinding of momentum trades, concerns about the sustainability of artificial intelligence capital spending, geopolitical conflicts and anxiety surrounding the midterm elections.
“There’s a lot that’s been digested by the markets,” he said, adding that market breadth had been “terrible” during the correction.
U.S. equities were in the green in midday trade on Tuesday. The SPDR S&P 500 ETF (SPY) rose 0.4%, the SPDR Dow Jones Industrial Average ETF (DIA) gained over 1%, and the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) moved 0.12% higher. Retail sentiment around tech-heavy QQQ on Stocktwits continued to trend in ‘neutral’ territory over the past day.
AI-related stocks also staged a comeback, with Micron Technology (MU), Intel (INTC), and SanDisk (SNDK) shares gaining over 1% each. CoreWeave (CRWV) stock rebounded after slipping below the $60 mark.
Amato Sees S&P 500 Reaching 8,300 By May 2027
Amato expects market breadth to improve after the correction runs its course. “We are going to see a rebroadening, I believe,” he said. “Once we get through this, you know, once the S&P finally does its final move, I think we can see a rebroadening.”
He also expressed confidence in the market’s medium-term outlook, saying the S&P 500 could reach 8,300 around May 2027.
“I think that’s very achievable,” he said, adding that a level of 8,500 “could be achievable by the middle part of next year.”
AI Trade Could Shift From Infrastructure To Adoption
“There is a transition going on within the AI trade from what we call the enablers to the adopters,” Amato said. “All this spending that’s been going on has been incredible for semiconductors, some of the power stocks, all the ones that benefit from the spending itself.”
He noted that with infrastructure now being developed, investors are beginning to question whether the economics will work for every company involved.
“The market’s doing a good job of separating some of the winners and losers,” he said. “What the market’s going to get excited about next year is the actual users of this technology leading to better revenue growth and profitability.”
Credit Spread Bigger Risk To Market Than Treasury Yields
Amato also cautioned that credit conditions within parts of the AI industry warrant close attention.
“We are seeing credit spreads widen in certain parts of the AI complex. That needs to calm down,” he said. “That’s probably a bigger risk than Treasury yields, quite frankly, because that’s where the spending is coming from.”
According to him, stronger economic growth has helped push rates higher. Amato said a 10-year Treasury yield of 5% would not necessarily be excessive if nominal gross domestic product growth were running at 7%.
He added that stocks can withstand higher rates when economic growth remains strong and the Fed does not tighten policy enough to derail the expansion.
Fed Policy, Oil Price Remain Risks
Amato said the next several weeks will be important as investors assess the Fed’s policy path, the midterm elections and financing needs across the AI sector. He ruled out an October rate hike but said a December increase remained possible.
Amato added that oil prices pose another challenge, stating that the effects extend beyond crude to products such as diesel and jet fuel.
Oil prices pulled back from earlier gains in midday trade on Tuesday. U.S. West Texas Intermediate crude futures expiring November traded at around $103 per barrel, while Brent crude futures expiring December were at roughly $108 a barrel at the time of writing, both lower by around 0.7%.
On Stocktwits, retail sentiment around the United States Oil Fund (USO) shifted to ‘bullish’ from ‘neutral’ territory over the past day. Sentiment around ProShares Ultra Bloomberg Crude Oil (UCO) remained in the ‘bullish’ zone.
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