Morgan Stanley: Three Major Factors Could End the Summer Rally in U.S. Stocks

Odaily reported that Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley, stated the bank is closely monitoring three major obstacles that could cause the stock market to suffer setbacks over the summer; historically, summer is usually the strongest season for stock market performance.

The first major risk is renewed conflict with Iran. Sheets said: “The US Strategic Petroleum Reserve has dropped to its lowest level in history. If the conflict escalates again, this could undermine its ability to respond to shocks.”

The second major risk is a Federal Reserve rate hike. Sheets pointed out that the expectation for the Fed to keep interest rates unchanged through the end of the year is one of the key pillars supporting the current bull market. “The risk is that this assumption could be wrong, and the error might quickly become apparent. Of course, there is a viewpoint that if the Fed is worried about inflation, it should not delay action.”

The third risk is the outlook for AI capital expenditures weakening. Sheets said: “The risk is that second quarter earnings reports may show a more cautious attitude toward spending, possibly because some companies that have aggressively invested in AI have seen weak recent stock performance. Given that current growth and profitability prospects are highly tied to AI, and investors strongly favor AI concept stocks, this scenario presents risks.”