Morgan Stanley says half the US market is already in a bear market

Morgan Stanley’s chief US equity strategist, Mike Wilson, and his team published a note on Monday arguing that the average US stock is quietly getting crushed even as headline indexes hold up¹. In the same report, Wilson said about half of US stocks are now in a bear market and described the market as standing at a crossroads⁴.

A separate summary of the note put the count in terms of the broad market: half of Russell 3000 constituents are in a bear market, with Treasury volatility set to shape the US equity outlook⁶. Wilson said US stock indexes remain near record highs while market internals tell a different story⁵.

Wilson’s team set the warning against a backdrop of indexes that have kept making highs, which is why the note is framed around internals rather than levels⁵. The firm published it on Monday, before the week’s trading¹.

Why it matters to investors

The claim is about breadth rather than direction. If the index is near a high while half its members are in a bear market, then the gain is concentrated in a small group of names^4,6. For anyone holding an equal-weighted or actively selected portfolio, that is a materially worse year than the headline suggests¹.

Wilson’s framing also names the mechanism. He said bond volatility will determine whether US stock indexes hold their ground⁵, and the Russell-based version of the note made the same point about Treasury volatility⁶. On that reading, the equity call is really a rates call.

Breadth of this kind also changes what an index return means as a benchmark. If the typical constituent of the Russell 3000 is in a bear market while the index itself is near a record⁶, then the measured market return is describing a handful of companies rather than the corporate sector^1,4.

What to watch

Wilson’s team did not stop at a warning. Morgan Stanley said the pullback in US stocks has created room for cyclical exposure, and Wilson argued the market is presenting a renewed chance to invest in cyclicals³. The note also identified specific stocks the firm considers worth buying after the de-rating in the average name¹.

The gap is visible from outside the United States as well. Australian coverage of the widening performance gap between the ASX and the US market cited Wilson as offering a more cautious view than the index move implies². Watch whether breadth recovers or whether the narrow leadership persists^1,4, and watch Treasury volatility as the variable Wilson says decides it^5,6.