Last week the S&P 500 made a brave attempt to hit new recovery highs, but ultimately failed because the stock markets ended the week weakly. Morgan Stanley's Mike Wilson explains three arguments in favor of this downward move and believes that it is a healthy correction that should ultimately allow the bull market to continue.
Although there was no smoking gun for this weakness, we would attribute it to three things: First, the increase in COVID cases has continued and the virus is far from being contained in the United States. This increase represents the pace of reopening of the US economy, schools, and everyday life activities. Second, polls indicate that Joe Biden has a huge lead over President Trump in this year's election, while the Democrats are also favorites in the congressional election. blue sweep "would initiate significant changes in future policies that are perceived as less market friendly. After all, valuations for the most favored parts of the stock market have reached their limits as some stocks are now reaching the territory of a bubble.
This should be a correction that creates an opportunity to buy some of these great companies at lower prices. It can also result in the overall market being traded lower considering the size and importance of some of these stocks for the overall index "For me, this would be a healthy development and a necessary precondition for the bull market that started in March to continue. For longer-term investors, it should be the break that refreshes.