Morgan Stanley sees little upside left on Wall Street

Strategists at Morgan Stanley believe the US stock market may be headed for a 10% correction if the economic data continues to worsen over the course of the third quarter.

The investment bank's US equity strategy team, led by Michael Wilson, told clients on Monday that the Federal Reserve's support, hopes for trade talks and "relatively light sentiment/positioning" all supported a case for "short-term incremental upside".

In Wilson's opinion, the S&P 500 might still push "a few percentage points" higher, but after that "we struggle to see a case for much more upside for the market and think that the market, much like the Fed, should start to become more data dependent."

However, he added that: "We remain convinced that fundamentals are worsening more than most acknowledge, and don't see the Fed or G-20 outcome changing that trajectory.

"If the Fed is cutting rates because it's truly the end of the cycle, rather than the Fed simply taking out insurance against that outcome, ithas much different implications for equity markets. The evidence is building that it's more the former than the latter.

"[...] We expect more clarity in the coming weeks and will be particularly focused on jobs and Purchasing Manager Indices."