LIVE MARKETS-Just the eye of the storm?

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JUST THE EYE OF THE STORM?

With U.S. stocks gaining on Monday, Morgan Stanley sent out a timely research note asking whether the worst of market and economic weakness was over or if there's more to come.

The research, from MS global chief economist, Seth B Carpenter, notes that the Federal Reserve's dot plot was largely in line with MS' weaker growth and firmer inflation expectations, adding that the market had "already internalized" much of the Fed's expectations by the time they were announced last Wednesday.

But the question remains for investors "whether the storm has passed or if we are in its eye."

"My view is that the market got the right answer on the economic slowdown in the US, but for the wrong reasons. The real slowdown has yet to show up in the hard data," writes Carpenter, noting that MS equity strategists see "further risks to earnings downgrades."

"We think there is more bad news to come for the US economy as substantial shifts in policy wend their way through the economy," Carpenter said.

Explaining why "near-term risks skew more and more to the downside," he notes that tariffs have come sooner and are broader than expected, although April 2 will be key.

"Fiscal policy is no longer the roughly neutral force in 2025 that we previously thought; the suspension of some outlays and spreading layoffs mean fiscal policy is now contractionary," he writes.

And, while still waiting for updates, he writes: "we still think immigration is an underappreciated drag on the economy, and markets substantially overestimate both the likely speed of deregulation and its ability to push growth."

So even though the market "may have over-reacted to some of the economic data" hard and soft, he also points to the Trump administration's signal that there may be a recession.

With so much to be uncertain about, Carpenter notes "little conviction" with baseline expectations.

He says cries for a recession are "probably" overdone since "the strongest evidence to date is in 'soft' data."

But Carpenter says, "the meaningful slowing might not show up for over another quarter." He plans to follow jobs market data more closely than usual.

(Sinéad Carew)

FOR MONDAY'S EARLIER LIVE MARKETS POSTS:

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NICE PMI REPORT - TOO BAD IT'S FLEETING - CLICK HERE

A TOUGH TIME FOR BRAZILIAN EQUITIES - CLICK HERE

U.S. INDEXES UP MORE THAN 1%, WITH CONSUMER DISCRETIONARY, TESLA LEADING - CLICK HERE

DOW INDUSTRIALS FLIRT WITH CORRECTION; TRANSPORTS FLIRT WITH BEAR - CLICK HERE

FX HEDGE ADJUSTMENTS TO LEAD TO EURO SELLING - CLICK HERE

DON'T TURN YOUR BACK ON EUROPEAN VALUE RETAILERS YET - CLICK HERE

EUROPEAN STOCKS FLAT, MINERS RISE - CLICK HERE

EUROPE BEFORE THE BELL: STOCKS HEAD FOR UPLIFT DESPITE TARIFF ANXIETY - CLICK HERE

IN GOOD SPIRITS AFTER HINTS OF TARIFF RETREAT - CLICK HERE