Nasdaq could plunge 15% or more as ‘rolling bear market’ begins claiming victims, Morgan Stanley warns

Morgan Stanley's Michael Wilson believes the stock market is entering a destructive phase.

"The Nasdaq could correct by 15 percent plus, the S&P 500 probably goes down about 10 [percent]," the firm's chief U.S. equity strategist said Thursday.

His comments came on CNBC's "Trading Nation," where he was speaking publicly on Monday's correction warning research note for the first time. Wilson contends financial conditions are tightening more than most investors appreciate, and a correction has already started.

"The market has just been getting narrower and narrower. So what we've seen is every sector within the S&P has gone through about a 20 percent correction on valuation except for two: technology and consumer discretionary — basically growth stocks," Wilson said. "Our view is that this rolling bear market has to complete itself by hitting those two sectors, and we think that's actually begun."

Wilson, who was one of last year's biggest bulls, sees this shift from growth to value stocks creating a lot of trouble because technology and consumer discretionary groups make up nearly half the S&P.

"If the growth stocks get hit disproportionately hard, it's going to be very difficult for that money to leak into other parts of the market without having some loss of value," he said.

Wilson's S&P year-end target is 2,750 — 4 percent below the index's record high of 2,872 hit on Jan. 26 and about 3 percent from current levels.

As for next year, he doesn't see the situation getting much better.

"There are definitely a lot of signs already that there's a view that things are going to slow materially next year whether there is a recession or not," Wilson said. "

However, he isn't bailing on stocks altogether. Wilson likes energy, utilities, industrials and financials as a rotation from growth to value picks up steam.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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