Morgan Stanley predicts a short-term rebound for US stocks, but warns that a long-term recovery will face numerous challenges.

Morgan Stanley's strategy team noted on Sunday that the recent US stock market showed signs of a short-term rebound after a sharp decline since February. The bank's analysis showed that the current market sentiment and position indicators were oversold since 2022, and the seasonal trading rebound in late March and the weakening of the dollar could potentially boost first-quarter corporate earnings, leading to a technical recovery. However, despite the short-term rebound momentum, technical concerns remain. The key 200-day moving average, which has turned from support to resistance, has been breached by the S&P 500, Nasdaq 100, and Russell 1000 growth/value indices. Notably, the Russell 2000 small-cap benchmark, which has fallen below its 200-week moving average for the first time since the 2022-2023 bear market, indicates the extent of the technical damage. As of last Thursday, the S&P 500 had reached the bottom of the bank's forecast range for the first half of the year at 5,500 points (actual close at 5,505 points). The market's performance on Friday showed that the rebound was led by previously oversold low-quality, high-volatility stocks, but Morgan Stanley warned that the core contradictions driving this adjustment had not been resolved. Multiple Pressures Weigh on Long-Term Trend In fact, the main cause of the current market volatility is not only the new tariff policy of the Trump administration, but also the deeper pressure from the overvalued market at the end of last year, the rise of the dollar and long-term interest rates after the Fed's pause in interest rate cuts, and new challenges faced by the technology industry. In addition, the growth rate of capital expenditure for artificial intelligence is expected to slow down in 2025, which may impact the performance of tech giants. Meanwhile, the fiscal deficit in the fourth quarter of 2024 in the US surged by 40% year-on-year, and the continuously expanding fiscal gap will become a drag on economic growth. Policy uncertainty is also worth watching. The new Department of Government Efficiency (DOGE) established by the Trump administration, combined with tighter immigration policies and unexpected tariff measures, is putting pressure on stock market valuations through the channel of lower price-to-earnings ratios. Despite the opening of a short-term rebound window, Morgan Stanley remains cautious about the long-term recovery. The downward revision of growth expectations is putting pressure on stock valuations, and although quarterly earnings may see a seasonal rebound, sustained improvement still needs time to be verified. From a policy perspective, the likelihood of stimulus measures such as tax cuts and relaxed regulations falling in the short term is low. The Fed would need to see a significant deterioration in the labor market or credit market before it could restart its easing cycle, and both scenarios are not positive signals for the stock market. Morgan Stanley strategist Michael Wilson concluded: "The current rebound is more likely to be a low-range fluctuation within the 5500-6100 range, and a breakthrough of new highs requires a significant easing of growth resistance or a shift in monetary policy."