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Morgan Stanley’s warning: A correction is coming and “the selling has just begun”

Morgan Stanley’s warning: A correction is coming and “the selling has just begun”
[Photo: Flickr user Rafael Matsunaga]

Morgan Stanley is bracing its clients for some stock market tumult.

“With Amazon’s strong quarter out of the way and a very strong 2Q GDP number, investors were finally faced with the question of ‘what do I look forward to now?'” said a new note from the bank’s analysts this morning. Morgan Stanley sees a correction on the horizon–the “biggest since February.”

In short, the firm believes a big stock decline is looming, and that the mostly good performance of tech stocks over the last year has left investors unprepared for this dip. This year, Morgan Stanley writes, “we are experiencing a rolling bear market.” Every sector has been de-rated, except for tech and consumer discretionary. This could very likely change, writes the report, especially given huge misses from Netflix and Facebook last week. These two huge earnings whiffs may be bellwethers for what’s on the horizon for the overall stock market.

The report warns of more volatility. “The bottom line for us is that we think the selling has just begun,” the analysts write. This correction’s impact could be worse than the huge stock drop earlier this year, it warns, “if it’s centered on Tech, Consumer Discretionary, and small caps, as we expect.”

Which is to say, Wall Street may be in for a jolt in the coming days.

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