Wall Street strategists say S&P 500 correction is likely nearing an end

 Strategists at RBC Capital Markets, JPMorgan and Morgan Stanley have told clients in notes that the recent stock market sell-off may be close to running its course, though they warned that fundamentals still matter heading into 2027.

The S&P 500 fell last week, which RBC strategist Lori Calvasina had warned was overdue. She said sentiment and valuation indicators suggest stocks could stabilize soon, even if Thursday’s close does not prove to be the low.

The AAII survey’s four-week average of bullish minus bearish investors has reached levels historically followed by an 11% average gain over the next 12 months. Calvasina said that in her conversations with institutional investors, the tone has been more “stunned” than “panicked.”

However, she noted that the indicators are not giving an all-clear on their own, and that earnings sentiment likely needs to stabilize for valuations to rise.

Morgan Stanley’s Michael Wilson said the correction is in its final stage, as the broader index catches down to weaker trading across individual stocks.

“The correction is entering its final phase, in our view, as the S&P catches down to breadth and approaches our 7100–7300 downside range,” Wilson wrote.

He expects a retest of last week’s lows to set up a year-end rally, and he recommends adding high-quality cyclical stocks with strong earnings revisions. Wilson also estimated that data center spending accounts for only about 5% of S&P 500 revenue in 2027, limiting the impact of any midterm-related delays.

JPMorgan’s Mislav Matejka said the tech sell-off is creating opportunities and that investors should add to equities into year-end if the sector stabilizes.

“One should be using any dip on the back of potential escalation to add, the same stance we had ever since March,” he said, referring to the Iran conflict.