Momentum stocks are expected to rebound! Morgan Stanley's Wilson: High-quality stocks are taking over from chips to lead the rally, and the S&P 500 is aiming for 8,000 points by the end of the year.

Morgan Stanley strategist Michael Wilson stated that as sectors with strong earnings replace chip stocks as the main drivers of the market rally, momentum stocks are expected to rebound sharply from their significant pullback. He believes the S&P 500 index could reach 8,000 points by year-end, a 7% increase from the latest closing price. Wilson indicated that after experiencing "one of the most severe momentum sell-offs in history," the market's style is shifting towards so-called quality stocks, which are those with a stable earnings history. He also noted that insurance, medical devices, and services stocks are increasingly favored. Goldman's momentum stock portfolio has dropped 35% from its peak in June. Year-to-date, the portfolio has risen 9.4%, in line with the S&P 500 index's gains. Goldman's momentum stock index has performed on par with the S&P 500 index this year. In recent weeks, as investors express unprecedented concerns over the capital expenditures of some of the world's largest tech companies, they have been selling global chip stocks. JPMorgan strategist Nikolaos Panigirtzoglou remarked, "We find that the deleveraging process by investors in tech and semiconductors (including storage stocks) has been faster than we previously expected. Thus, we now believe that further deleveraging potential is very limited." Meanwhile, U.S. companies have delivered what can be considered "one of the strongest earnings reports ever." Data indicates that the year-over-year growth rate of earnings per share for S&P 500 companies in the second quarter is expected to reach 29%, one of the highest levels outside of post-crisis recovery years. Additionally, 86% of S&P 500 companies exceeded earnings expectations, a five-year high. Wilson stated, "As the business cycle matures and operational leverage flattens in the post-recession period, we believe that the DRIVE of the stock market should shift from low-quality companies to those with more stable earnings, higher margins, and greater operational efficiency." Earnings resilience supports U.S. stocks with the S&P 500 index targeting 8,000 points. Wilson noted that the higher weight of quality stocks compared to low-quality stocks in the S&P 500, along with the expanding range of earnings revisions, should help drive the index to 8,000 points by year-end. The index closed at 7,489.72 points last Friday. Other Wall Street strategists share the same view, believing that the sell-off of chip-related stocks is nearing an end and that corporate earnings will continue to support the stock market. Goldman strategist Ben Snyder remarked that the current volatility bears a strong resemblance to historical instances when momentum factor trading became excessively crowded. In those scenarios, markets typically undergo a period of severe deleveraging and clearing of positions, followed by consolidation and eventually a return to a long-term upward trend. He also indicated that investors deleveraging "suggests potential improvements in future outlook," with the eventual outcome depending on subsequent earnings reports. Snyder emphasized, "Investors should not mistake the recent turbulence in AI stocks as the beginning of a broader market collapse. Unless earnings themselves begin to deteriorate, this broader bull market still rests on a solid foundation of rising corporate profits rather than being driven purely by speculation." JPMorgan private bank global investment strategist Kriti Gupta expects the S&P 500 index to rise over 10% in the next 12 months, possibly reaching 8,200 points by mid-next year. Although the U.S. is entering a "period of inflation reoccurrence" similar to the 1970s, Gupta believes that the recovery of inflation will not undermine the core supports of the current U.S. stock market bull runeconomic growth, corporate profits, and the AI investment wave. JPMorgan strategist Mislav Matejka reiterated that AI and broader tech sectors are unlikely to lead the market in the second half of the year, with the market's rally expected to continue expanding to more sectors. Despite semiconductor stocks being close to or in oversold territory, and the growth momentum of earnings still upward, he believes that this sector will trend towards stability. Matejka stated, "The strong performance of corporate earnings will continue to support the stock market."