Morgan Stanley says US stocks risk 11% drop on trade war

Morgan Stanley warned that US stocks could fall as much as 11% if Washington and Beijing fail to reach a trade agreement before the temporary truce expires in November.

Michelle Wilson, the bank's senior US equity strategist, said that markets are poised for a broad correction, given high equity valuations and increased investor risk exposure. She noted that Friday's escalation of the trade war took markets and analysts by surprise.

In a note to clients quoted by Bloomberg, she explained that the S&P 500 could fall to a range of 5,800 to 6,027 points in a worst-case scenario, equivalent to a decline of 8% to 11% from last Friday's close.

Wilson added that continued trade uncertainty and volatility through early November could lead to a larger correction than most investors anticipate, as the trade truce between Washington and Beijing approaches its expiration next month.

These warnings came after US President Donald Trump imposed 100% tariffs on Chinese goods, along with new export controls on critical software, effective November 1, following China's tightening of restrictions on rare earth mineral exports.