Difficulty: Hard 1) Morgan Stanley sees a 10% correction to S&P 500 in the short-term 2) Short-term US elections and Brexit risks are underappreciated by the market 3) Trade idea: Zero-cost S&P 500 diagonal put spread The InvestQuest’s View

We expect a short-term market correction before year-end, and a recovery thereafter. In view of US Elections (3rd Nov) and the Brexit transition hard deadline (31st Dec), we believe that the probability of a short-term market correction is more likely to transpire before year-end, than at the start of 2021. In particular, we are not convinced that a fiscal agreement will be concluded prior to the US election.

Markets are complacent currently. Despite upcoming event risks, the S&P 500 Index has been grinding higher in the past month on fiscal stimulus optimism, and is now just 4% short of record highs. We believe that short-term portfolio hedges

...