Buy the Dip: Morgan Stanley Sees Opportunity After Moody’s Cut

• Morgan Stanley’s (MS) Michael Wilson views dips in US stocks, triggered by Moody’s downgrade and rising 10-year Treasury yields above 4.5%, as buying opportunities due to reduced recession risks from the US-China trade truce.
• The S&P 500 (^GSPC), recovering from 2025 declines, is supported by a strong corporate earnings season and profit upgrades, with Wilson favoring US equities over international peers.
• Goldman Sachs’ David Kostin expects the Magnificent Seven tech stocks to outperform the S&P 500, driven by robust earnings, despite their year-to-date slump.

According to a Bloomberg report, Morgan Stanley’s (MS) Michael Wilson suggests that investors should view any near-term declines in U.S. equities as buying opportunities, supported by positive corporate earnings trends and a stabilizing global trade environment.. The recent downgrade of US credit by Moody’s Ratings, which cited a widening budget deficit, has pushed 10-year Treasury yields above 4.5%, sparking a 1.15% drop in S&P 500 futures on Monday. Despite this, Wilson remains optimistic, emphasizing that the temporary trade truce between the US and China has lowered recession risks, enhancing the appeal of US stocks. He notes that the probability of markets overlooking short-term trade data weakness has increased, as investors are likely to view such fluctuations as transitory due to the trade agreement.

Moody’s downgrade marks it as the last major US rating agency to lower the country’s debt rating, following Fitch Ratings in 2023 and S&P Global Ratings in 2011. This has reignited concerns about the attractiveness of US assets amid persistent global trade uncertainties. However, the S&P 500 (^GSPC), which had lagged international peers in 2025 until a recovery last week spurred by the US-China trade deal, is showing resilience. Wilson highlights that the corporate earnings season concluded without significant disruptions from tariff-related uncertainties, and a recent uptick in profit upgrades signals potential for further equity gains. His outlook contrasts with earlier warnings in March, where he anticipated US equity volatility persisting into the second half of 2025. Now, Wilson is among the few strategists favoring US stocks over international markets, citing improving fundamentals.

Separately, Goldman Sachs Group Inc. (GS) strategist David Kostin projects that the Magnificent Seven technology stocks, which have underperformed this year due to investor exits from high-valuation US equities, are poised to regain leadership. Kostin attributes this to their robust earnings trends, which he expects will outpace the broader S&P 500. The combination of these insights suggests a cautiously optimistic outlook for US equities, with both broad market and technology sector opportunities emerging despite recent macroeconomic pressures. This perspective aligns with broader market dynamics, where trade stabilization and corporate earnings strength are counterbalancing fiscal concerns.

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