Morgan Stanley Chief Sees S&P 500 Reaching 8,300 By May 2027

Morgan Stanley investment chief Joe Amato predicts the S&P 500 could reach a level of 8,300 by May 2027, stating that the current equity market correction is likely in its final stages. Amato told CNBC on Tuesday that investors may face two to three more weeks of volatility before stocks resume their advance, though he expects the market to finish the year strongly and continue gaining into next year.

The pressure on equities since June stems from the unwinding of momentum trades, concerns regarding artificial intelligence capital spending, geopolitical conflicts, and midterm election anxiety. Amato noted that market breadth had been poor during this period but expects a rebroadening once the correction concludes. He described a transition within the AI trade from infrastructure providers to end-users, arguing that future market excitement will center on companies using the technology to drive revenue growth and profitability rather than those benefiting from the initial spending cycle.

Amato highlighted credit conditions as a primary risk factor, noting that credit spreads are widening in parts of the AI complex. He characterized this development as a larger risk than Treasury yields because it directly affects the source of industry spending. Regarding interest rates, Amato stated that a 10-year Treasury yield of 5% would not be excessive if nominal gross domestic product growth were running at 7%. He added that stocks can withstand higher rates provided economic growth remains strong and the Federal Reserve does not tighten policy enough to derail the expansion.

In midday trade on Tuesday, U.S. equities were positive. The SPDR S&P 500 ETF (SPY) rose 0.4%, the SPDR Dow Jones Industrial Average ETF (DIA) gained over 1%, and the Invesco QQQ Trust (QQQ) moved 0.12% higher. AI-related shares also recovered, with Micron Technology, Intel, and SanDisk each gaining over 1%. CoreWeave stock rebounded after previously slipping below $60. Oil prices pulled back from earlier gains, with U.S. West Texas Intermediate crude futures expiring November trading at approximately $103 per barrel and Brent crude futures expiring December at roughly $108 per barrel.

Amato ruled out an October rate hike by the Federal Reserve but indicated a December increase remained possible. He cautioned that investors will closely assess the Fed's policy path, midterm election outcomes, and financing needs across the AI sector in the coming weeks. Additionally, he identified oil prices as a challenge, noting that impacts extend beyond crude to products such as diesel and jet fuel.