The odds of a 20% correction in stocks are rising as the market transitions to the next stage of its cycle, Morgan Stanley warns

The odds of a 20% correction in stocks are rising as the market transitions to the next stage of its cycle, Morgan Stanley warns

The slump in the benchmark S&P 500 on Monday offers a different sentiment from the market's seven-month run since the beginning of this year. It means the odds of a 20% correction in equities are increasing as the market transitions to the next stage of its cycle, Morgan Stanley said in a note published Monday. Analysts — led by Michael Wilson — called this scenario "Ice," which would happen if earnings revisions and higher-frequency macro datapoints slow down. They laid out another near-term risk path for the stock market, called "Fire, a more optimistic outlook that would occur if the begins to remove monetary accommodation as the US economy overheats. Ice, the more likely of the two outcomes, they said, would be "destructive" as it would translate to a 20% correction in the S&P 500, whereas Fire would only lead to a "modest and healthy" 10% correction. "Will it be Fire or Ice? We don't know, but the Ice scenario would be worse for markets and we are leaning in that direction," the analysts said. "We think the mid-cycle transition will end with the rolling correction finally hitting the S&P 500." Still, analysts said they are bracing themselves in the