Morgan Stanley suggests that the recent decline in the Magnificent Seven stocks might be coming to an end. They believe that a recovery in the large-cap technology sector could lead to a resurgence in the US markets. Factors such as a weaker US dollar and improved earnings forecasts are seen as positive signs.

The performance of the high-flying tech companies like Meta, Microsoft, Nvidia, Apple, Alphabet, Amazon, and Tesla has been challenging in the beginning of the year, with Meta being the only stock in the group showing a year-to-date gain. According to analysts at Morgan Stanley, there are indications that the outlook for these stocks is improving. This positive trend is not only beneficial for these specific stocks but also for the broader stock market, which has heavily relied on the tech sector to drive the bull market in the past couple of years.

Morgan Stanley's analysts, led by chief investment officer Mike Wilson, believe that a rebound in the Magnificent Seven stocks could attract investors back to US equities following the recent market correction. They suggest that various factors including seasonal trends, lower interest rates, and oversold momentum indicators support the likelihood of a tradable rally ahead. The bank also notes that recent weakening of the US dollar is historically favorable for US corporate earnings, as it tends to make American products and services more competitive on the global market.

Historical trends show that a weaker US dollar relative to the euro has led to a stronger ratio of S&P 500 to MSCI Europe earnings revision breadth, indicating a potential strengthening of US corporate earnings compared to those in Europe. This shift in currency value could benefit US companies and support a turnaround in the market.