Morgan Stanley: Markets may be starting to 'sniff out' a Republican sweep during midterms

  • "That would argue more fiscal stimulus, more funding and that would cause rates to spike up," Morgan Stanley's chief U.S. equity strategist, Mike Wilson, says.
  • He contends the stock market would likely take a Republican win positively initially, but would then sell.
  • The prospect of the Fed raising interest rates more aggressively has been a major drag on stocks in recent weeks.

Morgan Stanley's Mike Wilson attributes at least part of the recent stock market sell-off to some investors starting to think Republicans are going to keep their majority on Capitol Hill in the November midterm elections.

Perhaps the market is starting to "sniff out a Republican sweep," he said Thursday on CNBC's "Fast Money Halftime Report." "That would argue more fiscal stimulus, more funding and that would cause rates to spike up."

Wilson, chief U.S. equity strategist at Morgan Stanley, said his firm believes that Democrats will win the House and Republicans will keep hold of the Senate.

"I don't know the answer, but it smells a little fishy to me," he said, arguing the market would likely take a Republican win positively initially, but would then sell.

The prospect of the Federal Reserve raising interest rates more aggressively has been a major drag on stocks in recent weeks.

One day before the Oct. 10-11 stock market plunge, Wilson said rising rates served as the "tipping point" for the rolling global slowdown to finally hit the U.S. and "take out the last holdouts."

U.S. stocks were higher Thursday, partially rebounding from massive declines Wednesday, when the three major indexes dropped to their lowest closes in months.