Fox Business: Morgan Stanley Warns Stock Market Rally Will Likely Be Short Lived

Article by Megan Henney in Fox Business

The stock market briefly bounced back last week from a widespread selloff that began earlier this month, but equities are likely to see further losses as sky-high inflation and an increasingly hawkish Federal Reserve continue to pose risks to the economic outlook.

That's according to Morgan Stanley analysts, who said in a note that the relief rally in the stock market has limited scope to go much further until the risks begin to fade. 

"Last week’s strength will prove to be another bear market rally in the end," the strategists, led by Michael Wilson, wrote in the note. "The key fundamental call we are focused on now is slowing growth, and our view that earnings estimates are too high."

Wilson expects the S&P will trade close to 3,400 by the end of the second-quarterearnings season in mid-August. That would mark an 18% drop from current levels and a 29% decline from the beginning of the year. 

He warned that "inflation remains too high for the Fed’s liking and so whatever pivot investors might be hoping for will be too immaterial to change the downtrend in equity prices."

There are growing fears on Wall Street that the Fed may inadvertently trigger a recession with its war on inflation, which climbed by 8.3% in April, near a 40-year high.

Other firms forecasting a downturn in the next two years include Bank of America, Fannie Mae and Deutsche Bank. Subramanian put the odds of a recession around 40%. 

Economic growth in the U.S. is already slowing. The Bureau of Labor Statistics reported earlier this month that gross domestic product unexpectedly shrank in the first quarter of the year, marking the worst performance since ......

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