The market will continue to grind higher over the near-term, says Morgan Stanley’s Lisa Shalett

Key Concepts

• Tariffs and their perceived impact on the economy and markets
• Market recovery and new highs despite tariff concerns
• Potential corporate tax stimulus and its effect on earnings and capital spending
• Market momentum, leadership, and positioning
• S&P 500 price target and potential "sell the news" event

Tariffs and Economic Impact

• Treasury Secretary Scott Bessent stated that tariffs haven't hurt the economy or markets, citing the market's rapid recovery from a 15% decline in April and new market highs.
• Lisa Chow of Morgan Stanley Wealth Management disagrees, stating that tariff policy resolution is still pending with no deals from most countries and the July 9th deadline approaching.
• Chow believes the market has moved on and assumes tariff impacts will be "digestible," focusing instead on potential corporate tax stimulus.

Market Dynamics and Outlook

• The market narrative is centered on the next 6-12 months, anticipating stimulus from a tax bill that will boost earnings, capital spending, and productivity.
• In the short term, the market exhibits upward momentum, led by the "same old, same old" Mag Seven tech stocks.
• Market positioning is only average, and technical factors like sentiment are not yet overbought, suggesting continued upward movement.
• Morgan Stanley's full-year S&P 500 price target is 6500, anticipating further gains in the next six to eight weeks.

Potential "Sell the News" Event

• Chow suggests that once the debt ceiling is resolved and the tax bill is passed, a "sell the news" event may occur.
• This is because much of the positive news has already been priced into the market, and challenges may emerge as we move into 2026.

Conclusion

The discussion revolves around the market's reaction to tariffs and the anticipation of a corporate tax stimulus. While the Treasury Secretary claims tariffs haven't negatively impacted the economy, Lisa Chow argues that the situation is still developing. The market is currently driven by momentum and the expectation of stimulus, but a "sell the news" event could occur once the tax bill is passed, as much of the positive news is already factored into prices. The focus then shifts to the challenges of 2026.