Emerging Bull Case

Morgan Stanley analysts have identified the onset of a new bull market, driven by a rapid reversal of tariffs and decreasing tensions in US-China trade relations. After a significant dip post-Liberation Day, many risk assets have made a strong comeback, leading to the current bullish outlook.

Key Factors Supporting the Bullish Trend

1. Reduced Tariff Risks
   Deferred or rolled-back tariffs serve as a non-event, lowering policy risks for investors.
2. Shifts in Earnings Revisions
   Analysts are adjusting 2026 earnings forecasts positively, reducing concerns about 2025 figures.
3. Weak Dollar Benefits Multinationals
   A weaker US dollar enhances revenues for multinational corporations.
4. Understanding Inflation
   Analysts are reevaluating inflation risks due to low oil prices and subdued CPI data.
5. Rate Cut Speculations
   Market participants increasingly expect the Federal Reserve to reduce rates this year, lowering borrowing costs.
6. Corporate Tax Advantages
   Upcoming tax reforms are likely to spur increased capital expenditure among firms.
7. Generative AI Growth
   The rise of generative AI is expected to act as a multi-year growth driver for tech stocks.

Watchful Metrics for Investors

• S&P 500 Index: Currently ~6,000, only about 2.3% from all-time highs.
• NASDAQ Index: Up approximately 25% from recent lows.
• Volatility Index: Negative sentiment has decreased, now below a five-year average.

Risks to Consider Moving Forward

• Global Yield Curve Changes
  Heightened long-term interest rates could compress equity valuations.
• Increasing Budget Deficits
  Expanding fiscal imbalances could challenge market confidence.
• Tariff Deadline Concerns
  Anticipated tariff announcements could spark renewed volatility in markets.

Strategic Takeaways for Investors

• Valuation Monitoring: High P/E ratios warrant caution in investment approaches.
• Policy Developments: Budgetary decisions and tax adjustments can shape growth narratives.
• Adapting to Changes: Keep exposure to cyclical sectors and innovative firms as bullish trends unfold.