By Sam Boughedda
The Federal Reserve cannot stop the oncoming earnings recession, according to Morgan Stanley analysts on Monday.
In a note, the analysts stated: "Fire and Ice remains in gear with M2 growth now into the danger zone where financial/economic stress occurs. While the Fed can fix this by restarting QE, it cannot stop the oncoming
earnings recession."
The firm remains bearish on US equities and sellers of rallies until "EPS forecasts de-rate, and the price is right."
"With financial stress now appearing in places where central banks are unwilling to tolerate it, the primary question on many investors' minds has once again shifted to when the Fed pivots, not if. With global US dollar liquidity now into the danger zone where "bad stuff" happens, we agree it's only a matter of time before these stresses finally convince the Fed to back off. Nobody knows what that market event will be; but when it comes, it will be fast and furious, and the Fed will reverse course," the analysts explained.
He added that when the Fed decides to "put out the fire," stocks and other risk assets will likely rally sharply, but "trying to play that for more than a tradable bounce is a bad idea." The analysts said this is due to the "oncoming earnings recession, which is likely to pick up steam this earnings season and next."