Morgan Stanley Bullish on U.S. Equities Amid Tech Earnings, Trade Progress
1min read Morgan Stanley's trading team has recently adopted a tactical bullish stance on U.S. equities, citing positive factors such as strong earnings reports from tech giants and progress in trade agreements. These elements are expected to drive the recent downturn in U.S. stocks to rebound. However, the firm cautioned in a report to clients on Monday that this upward momentum may dissipate within a few weeks, as the negative impact of U.S. tariffs is expected to start weighing on the economy in the coming months.
Global Market Intelligence Chief Andrew Tyler noted in the report, "Overall, the easing of trade tensions still has room to continue." However, he added that this does not mean the market's alarm has been completely lifted. The report emphasized that the recent bullish outlook is primarily based on technical factors rather than fundamental analysis. Tyler's team pointed out that the current market conditions, characterized by light positioning, low liquidity, and low investor participation, suggest that the market could continue a mild upward trend as long as there are no escalations in tariffs or surges in bond yields.
The team also highlighted the potential for a trade agreement to improve the risk-reward ratio. They anticipate that strong earnings reports from major tech companies could act as a catalyst for the stock market. This expectation will be tested this week as microsoft, apple, meta, and Amazon, among others, are set to release their earnings.
Despite the escalating trade tensions, the group of tech giants, including Google, Tesla, and Nvidia, is expected to maintain an average profit growth rate of 15% for the year, aligning with the forecast from early March. However, Tyler warned that the negative impact of the trade war on the real economy will become apparent in 1-2 months, a view shared by many on Wall Street who anticipate a deterioration in U.S. economic data. The next significant test for traders will be the non-farm payroll data released on Friday.
Additionally, Morgan Stanley's equity research team predicts that the S&P 500 index will fluctuate between 5200 and 5800 points, influenced by both trade benefits and recession concerns. The team advised, "We are inclined to reduce risk assets during strong periods rather than chase gains, as the market narrative needs more clear signals to fully shift."
