Investing.com -- Friday's sharp equity selloff was a necessary and ultimately constructive development for the bull market's longevity, Morgan Stanley chief U.S. equity strategist Michael Wilson said in a note on Monday, maintaining his year-end S&P 500 target of 8,000.

Wilson told clients that the move was driven primarily by positioning rather than fundamentals, with semiconductors and memory stocks bearing the brunt after extraordinary year-to-date gains met crowded positioning across hedge funds and leveraged ETFs.

The Philadelphia Semiconductor Index fell 10% on Friday, its worst single-day return since 2020, after rising 96% year to date and trading approximately 35% above its 50-day moving average, which was the widest such gap in roughly 25 years.

Morgan Stanley's Prime Brokerage team noted that semiconductors now represent approximately 25% of the global hedge fund book.

Leveraged ETF activity had created more than $225 billion of global equity demand year to date through Thursday, with Friday's session reversing an estimated $55 billion of that.

Despite the severity of the move, Wilson said the broader earnings and economic backdrop remain supportive.

Earnings revisions breadth for the S&P 500 has reached 26%, a new cycle high, while the ISM Manufacturing PMI rose to 54 last week and the three-month average of private payroll gains improved to 166,000, the strongest reading since 2023.

"A correction was inevitable and ultimately healthy if this bull market is going to extend into year-end," Wilson wrote.

He identified Consumer Discretionary, Transports, and Regional Banks as the most likely candidates for the next leadership rotation, noting the Dow Transports Index was actually up 0.7% on Friday.