S&P 500’s 5,100–5,500 range in play for investors if recession avoided: MS

Investing.com – U.S. stocks have been on a rollercoaster ride after making a roundtrip on tariff-related trauma, but as some light starts to appear at the end of the trade-war tunnel, Morgan Stanley (NYSE:MS) analysts suggest that 5,100 to 5,500 on the S&P 500 could be an entry zone for long-term investors if recession is held at bay.

After a month of whipsaw trading, the S&P 500 now sits just above its first-quarter close at 5,660, as the 90-day reciprocal-tariff pause has opened the door to trade deals, carve-outs, and exemptions that have eased economic risk.

“Long-term investors should view 5,100–5,500 as a defensible entry zone if recession is held at bay; that said, equal weighting or active stock picking is still preferred,” Morgan Stanley strategists said in their latest note.

The recent relief rally has been fueled by a combination of factors: decent corporate earnings, resilient economic data, stabilizing Treasury yields, and growing confidence that a 10% universal tariff scenario is now the base case following the U.S.-China trade deal agreed over the weekend. The Trump administration’s push to walk back extreme tariffs in favor of a more manageable 10% levy, along with ongoing trade negotiations, has helped investors look toward potential positive catalysts.

The Trump administration’s push to walk back extreme tariffs in favor of a more manageable 10% levy, along with ongoing trade negotiations, has helped investors look toward potential positive catalysts.

Still, Morgan Stanley cautions that material upside for equities will likely depend on several key hopes: an acceleration of the deregulatory agenda, a pro-growth tax bill, and sustained low energy prices, paired with trade deals that stimulate U.S. agriculture, defense, and LNG sales. “While we remain cautious, we need to seriously consider the bull case’s underpinnings,” the analysts wrote, but achieving these outcomes “will take luck and skill-especially amid looming U.S. debts, geopolitical instability and slim legislative margins.”

On the fiscal front, analysts warn that extending tax cuts may not provide the economic muscle many expect, with the risk that regressive tariffs could offset much of the benefit, while deficits could climb by up to $3 trillion over the next decade.

A deregulatory agenda, however, could free up as much as $2.6 trillion in lending capacity if reforms are enacted, particularly in financial services and energy. A third benefit could emerge if sustained low energy prices from aggressive OPEC output hikes and strategic U.S. wins in trade negotiations with Canada, Mexico, Japan, India, and the EU lead to slower inflation and higher growth, cooling the risk of stagflation.

Yet, despite the recent bounce, much uncertainty lingers. The analysts flag valuation concerns, with the S&P 500 trading at nearly 21 times forward earnings, and note that “much of the so-called economic uncertainty remains unresolved.”