How will US stocks move after the midterm elections? Wolfe warns of an AI "wall of worry," while Morgan Stanley says the pullback is nearing its end.

Wolfe Research said in a report on Monday that traders hoping the U.S. midterm elections will mark the end of bad news for the stock market may be facing an AI-driven "wall of worry" that is preventing the market from moving higher. On the same day, Mike Wilson, head of U.S. equity strategy at Morgan Stanley, said the stock market pullback that began several months ago is in its final stage and investors should use the opportunity to allocate risk. The Wolfe strategist team led by Chris Senyek wrote in the report that investors are now more focused on AI buildout, and trades around the technology have become a "show-me-the-numbers" story, although the midterm elections may still be the biggest catalyst for U.S. stocks this week. Senyek said the AI trade is "now hostage to technical trading factors, including signs of shakeout as investors lock in full-year gains." Last week, the Nasdaq 100 Index fell about 2%, dragged down by disappointing results from Alphabet (GOOGL.US) and Amazon.com, Inc. (AMZN.US). On Monday, the index continued to decline. Senyek expects U.S. stocks to remain range-bound as traders assess mixed results from hyperscalers. He said NVIDIA Corporation's (NVDA.US) earnings report on Nov. 17 will be "crucial" for the AI trade to "regain favor." Senyek said the stock market is "still blocked by a well-known 'wall of worry,'" adding that the latest hyperscaler developments are not entirely bad. He noted that Anthropic PBC's S-1 filing, Microsoft Corporation's (MSFT.US) solid results and positive signals from Oracle Corporation's (ORCL.US) analyst day were all overshadowed by news from Alphabet and Amazon.com, Inc. Senyek said execution missteps by hyperscalers may continue to weigh on the market in the near term. Senyek noted that whether U.S. President Trump increases pressure on Iran after the midterm elections, and the subsequent impact on oil prices, is "the biggest macro wildcard ahead." Data compiled by Morgan Stanley show that since 1950, U.S. stocks have risen in both the 6 months and 12 months after every midterm election. Senyek expects that as long as oil prices remain stable and NVIDIA Corporation's earnings and Anthropic's upcoming IPO "prove to be positive catalysts," the market will rise through year-end after the midterm elections. He also said that over the past 30 years, U.S. stocks have historically tended to rise starting in November; this year will depend on "how long last week's AI trade 'hangover' lasts." As Wolfe Research sends a cautious signal, Wall Street strategists are trying to predict the direction of the stock market after the U.S. midterm elections. Mike Wilson, head of U.S. equity strategy at Morgan Stanley, said on Monday that the stock market pullback that began several months ago is in its final stage and investors should use the opportunity to allocate risk.