Morgan Stanley analysts argue that a “new bull case” is taking shape, fueled by a rapid reversal of reciprocal tariffs and de-escalation of U.S.-China trade tensions. After a sharp post–“Liberation Day” drawdown, risk assets have clawed back losses and now sit firmly in positive territory for the year.
Key Drivers of the Bull Case
Tariffs as a Manageable UnknownInvestors now view delayed or rolled-back tariffs as a non-event, reducing policy risk.
2025 Earnings in the RearviewConsensus has shifted: 2026 earnings revisions are turning less negative, making 2025 figures less relevant.
Weak U.S. Dollar TailwindA lower dollar boosts multinational revenues and supports market momentum.
Inflation OverestimationLow oil prices and subdued CPI prints have analysts questioning whether inflation risks were overstated.
Fed Rate Cut ExpectationsGrowing belief that the Fed will start cutting rates this year, driving borrowing costs lower.
Corporate Tax Cuts & Capex BoomFront-loaded tax cuts are expected to spur a wave of capital expenditure and productivity gains.
Gen AI Early-InningsThe promise of generative AI provides a multi-year growth catalyst for technology stocks.
Market Metrics in Focus
S&P 500: ~6,000 (≈ 2.3% below all-time highs).
NASDAQ: +25% from recent lows.
VIX: Volatility index is now below its five-year average, signaling calmer markets.
To track rolling valuation metrics such as price-to-forward earnings and equity risk premium, use the Ratios TTM Statement Analysis API.
Potential Risks to Monitor
Steepening Global Yield CurvesRising long-term rates could compress equity multiples.
Widening U.S. Budget DeficitsFiscal imbalances may undermine the “American Exceptionalism” narrative.
Tariff Deadline JittersThe July deadline for re-imposing delayed tariffs could trigger renewed volatility.
Strategic Takeaways for Investors
Monitor Valuation Signals: Elevated P/E ratios above 21.5x warrant caution.
Watch Fiscal Policy: Budget gaps and tax policy updates can alter growth assumptions.
Stay Flexible: Maintain exposure to cyclical sectors and AI-related innovators as the bull case unfolds.
