Further US stock market gains need earnings boost - Morgan Stanley

investing.com:

Investing.com — The main U.S. indices have grown strongly since October, but further gains may prove hard to come by without an earnings boost, according to analysts at Morgan Stanley.

The major Wall Street averages posted a losing week last week, but this was on the back of a historic rally from October, when the Federal Reserve took a more dovish stance regarding potential interest rate cuts.

The broad-based S&P 500 is up over 32% over the last year, the blue-chip Dow Jones Industrial Average up over 20%, while the tech-heavy Nasdaq Composite has been the star, gaining over 44%.

“We attribute the equity rally to the easing of financial conditions, rise in liquidity and continued fiscal support in the context of a consensus that got too bearish last October,” said analysts at Morgan Stanley, in a note dated March 11.

However, “with these dynamics now better understood by the market, the burden is now likely on earnings/fundamentals to show more material improvement.”

The fundamental backdrop remains ambiguous with many conflicting data points, the bank added, with a solid economic backdrop as measured by many of the aggregate statistics (payrolls, GDP, ISM services, credit card lending, etc) offset by some still sluggish indicators (ISM manufacturing, housing activity, durable goods, C&I lending,

“This mix suggests a soft landing, but provides limited evidence of a big second half rebound for the broader economy or earnings thus far. A lack of a 2H growth inflection could serve as a headwind for economically sensitive areas of the market, particularly if the Fed holds off on cutting rates longer than expected,” Morgan Stanley added.