Semis might stage a near-term bounce, but assuming overall equity market gains hold into year-end, leadership should continue “to broaden beyond the space.”

That was one message from Morgan Stanley’s Mike Wilson, who on Monday patted himself on the back for predicting the momentum unwind.

“Predicting” is a strong word, and Wilson mercifully didn’t use it. Rather, he simply reminded investors that when revisions breadth started to roll over for semis, he flagged it, alongside an interesting analogue with silver.

The figure on the left, above, shows you the “roll over” moment. The figure on the right’s an updated version of the silver-as-a-leading-indicator chart mentioned here.

“A month ago, we argued that the momentum trade and Semiconductors in particular were due for a pullback as earnings revisions breadth reached historical extremes, price action reflected commodity-like volatility and positioning became increasingly concentrated and driven by leverage,” Wilson wrote Monday.

Chip stocks, you’ll recall, slipped into a bear market last week. The biggest fundamental concern (i.e., setting aside the observation that trees don’t grow to the sky and that parabolic rallies built on leverage have a way of imploding under their own weight) is hyper-scaler capex.

Specifically, the growth rate (note the emphasis) of the big-spender outlays which accrued to semis as windfall profits is going to slow, despite still-high overall spending. Some worry the hyper-scalers might guide capex lower or at least strike a cautious tone when they report earnings for Q2 this month and Q3 in October. Those worries have the chips down.

Wilson thinks it’s “reasonable” that semis could bounce after slipping into a bear market last week, but said he’s “not convinced they will regain their leadership position in the second half of this year.”

Instead, Morgan Stanley’s equities team reckons the “broadening has legs and a wider range of industry groups will lead the market higher into year-end once this correction is finished.”

As for the index itself — i.e., to answer the only question most people care about, “Where’s the S&P 500 going?” — Wilson said if the momentum unwind “spills over into other areas and/or the conflict in the Mideast escalates,” we could see a “further consolidation” toward technical support in and around 7000. That’s the bad news.

The good news is, the broader bull case would remain intact, in Wilson’s view. “We still think our year-end target of 8000 is very achievable,” he wrote, even as he cautioned that any additional de-leveraging tied to the momentum unwind could “be exacerbated” by a less favorable liquidity environment at a time when equity and corporate debt issuance are notching records.

“Capital is no longer just going into financial assets but also into the real economy,” Wilson said. “Ultimately, we believe the Fed and Treasury will be responsive to any stress from liquidity shortfalls, but this may come in a more reactive, rather than proactive manner.”