Despite the sharp sell-off in tech stocks following strong non-farm payroll data released last week in the U.S. causing a ripple effect across global markets, many major institutions on Wall Street do not believe the current decline signals the end of the bull market.
Analysts argue that the recent sell-off was a healthy correction driven by overvalued markets and tight positions, pointing to the continued strength of the U.S. economy and corporate profitability.
Last Friday, Nasdaq Composite Index fell by 4.2%, recording one of the biggest single-day drops in its history. Strong employment data, which bolstered expectations that the U.S. Federal Reserve (Fed) could raise interest rates this year, sparked a sell-off that quickly spread to global markets. The sharp decline in tech stocks caused South Korea’s KOSPI index to drop by 8.1% on Monday, while tech companies across the Asia-Pacific region also faced intense pressure.
Morgan Stanley Chief Investment Strategist Mike Wilson stated that the main reason for the recent decline was the overvaluation of technology stocks, particularly in the semiconductor sector. According to Wilson, the Philadelphia Semiconductor Index, which has risen 96% since the start of the year, deviated by approximately 35% above its 50-day moving average, one of the most extreme deviations in the past 25 years. During the same period, the index’s 9-day RSI indicator reached 83, which confirmed that the sector was in overbought territory.
Wilson said Friday’s sell-off saw the Philadelphia Semiconductor Index drop 10%, marking its sharpest daily loss since 2020, but added that this did not mean the bull market had ended, though a recovery after such overbought conditions could take time.
According to Morgan Stanley, the most critical element in the short-term market outlook will be whether institutional investor positions can return to normal levels. Furthermore, a sustained rise in the U.S. 10-year Treasury yield above the 4.5% level could lead to broader pressure on stock valuations.
Liquidity conditions are being closely monitored
Wilson also drew attention to liquidity conditions in the markets. He noted that while markets saw strong liquidity support in the first quarter, they have entered a tighter environment in recent months due to policies of the Fed and the US Treasury Department, with weakness in precious metals and cryptocurrencies signaling this trend in advance.
Nevertheless, Morgan Stanley stressed that the fundamental indicators of the U.S. economy remain strong. Recent data showing the ISM manufacturing index reaching 54—its highest level since 2022—and the three-month average of nonfarm payrolls increasing by 166,000 stand out as factors supporting the economy’s resilience.
Wilson also mentioned that the upward earnings revision rate for S&P 500 companies has reached 26%, the highest level of the current cycle, suggesting that corporate profitability is outperforming market expectations.
Morgan Stanley maintains year-end target for the S&P 500 at 8,000 points
Morgan Stanley recommends that investors reduce their exposure to momentum-driven technology stocks—which have been the focus of intense investor interest—and shift toward sectors that have lagged behind. The report specifically mentioned companies sensitive to consumer spending, regional banks, and the transportation sector as likely to perform better in the coming period.
Wilson believes that the upward trend in profit expectations for semiconductor and data storage companies in the technology sector has largely been priced in, and he adopted a cautious stance regarding whether the software sector could reclaim its leadership role. Morgan Stanley maintains its year-end target for the S&P 500 at 8,000 points.
Citigroup raises target
Citigroup has recently joined the list of institutions expressing optimism regarding U.S. stocks. The bank raised its year-end 2026 target for the S&P 500 from 7,700 points to 8,100 points. This new target represents a potential increase of approximately 10% from the index’s latest closing level.
Citigroup cited strong corporate profitability and the long-term growth effects of AI investments as key reasons for this revision. It also raised its 2026 earnings per share (EPS) forecast for S&P 500 companies from $320 to $350, while announcing an initial 2027 forecast of $400.
Many institutions on Wall Street agree that AI-driven growth and strong corporate balance sheets could offset geopolitical risks stemming from the Middle East and inflationary pressures in the short term.
However, Citigroup warns that a slowdown in the growth rate of AI investments after 2027 could pose a significant risk to U.S. stock markets. According to analysts, the current bull market resembles a “super cycle” based on global capital spending rather than a classic economic expansion. Therefore, stock performance in the coming years will largely depend on companies’ ability to sustain profit growth.
