Morgan Stanley Chief U.S. Equity Strategist Mike Wilson said Monday that the stock market's four-month correction is entering its final phase, with last week's selloff marking the start of the bottom.
"This is the final innings," Wilson told CNBC. "We don't know exactly when it's going to end, but we're into the zone." He projects the S&P 500 will find its floor between 7,100 and 7,300.
U.S. equities rallied Monday morning from the previous week's decline. The SPDR S&P 500 ETF gained 1.69 percent, the SPDR Dow Jones Industrial Average ETF rose 1.38 percent, and the Nasdaq-100 tracking Invesco QQQ Trust climbed more than 2.5 percent.
Wilson explained that the S&P 500 held up during the correction because a small group of large companies kept the index elevated while most stocks sank deeply. Thursday's market action marked when the S&P 500 finally caught down to reflect the underlying damage.
He expects the index to rally toward 8,000 by year-end once the correction ends. Wilson also cited historical precedent: the six to 12 month period following U.S. midterm elections has consistently delivered strong returns.
Semiconductor stocks now present the best entry point, Wilson said. Chip stocks have fallen roughly 40 percent from their highs, with some names down 70 to 80 percent. The iShares Semiconductor ETF fell more than 12 percent on Thursday—its worst day since March 2020—before gaining 4.5 percent Monday morning.
"The time to be negative on semis was back in June and July," Wilson said. He forecasts that artificial intelligence infrastructure spending will continue despite market concerns about the scale of outlays. "This capex is going to happen. The capital's been raised. The market now is priced for a slower trajectory. To me, that's an interesting entry point, not a sell point, but it could take another week or two."
Wilson favors higher-quality semiconductor companies with stronger balance sheets and cash flow generation over lower-quality names that led the rally earlier this year.
