Morgan Stanley says bull market is ‘broken’

The stock market rallied Wednesday after President Trump unexpectedly announced a 90-day pause on most tariffs, lowering rates to 10% for nearly all U.S. trade partners — except China.

Trump said his about-face was in response to markets getting “a little bit yippy, a little bit afraid.”

Meanwhile, Treasury Secretary Scott Bessett claimed the pause was part of Trump’s strategy all along, despite repeatedly saying just days earlier that no tariff rollback was coming.

The abrupt U-turn has left investors questioning whether the 90-day freeze will actually hold — or if Trump will reverse course yet again.

“This allows for at least a near-term rally, but I would not assume the bottom is in,” said Sam Stovall, chief investment strategist at CFRA in an interview with CNBC. “Fool me once, shame on you; fool me five times, shame on me.”

Morgan Stanley: The old playbook Is dead

Lisa Shalett, CIO at Morgan Stanley Wealth Management, isn't expecting a repeat of the Covid-era bounce.

Back then, buying the dip worked thanks to aggressive rate cuts and surging mega-cap tech stocks. That playbook, she says, no longer applies.

In a recent note to clients, Shalett wrote that the market’s bullish narrative — built on the expectation of Federal Reserve rate cuts, the dominance of U.S. tech, and the post-election “Trump bump” — is gone.

Uncertainty around Trump’s trade policies has weakened the premium investors once received for taking on risk.

Meanwhile, the “Magnificent 7” have lost momentum, with growth slowing, earnings estimates slipping, and questions mounting over whether their heavy capital spending will pay off.

These companies also earn more than half their profits overseas, which are now threatened by higher tariffs.

At the same time, the Federal Reserve has pivoted into a “patient pause,” keeping rates steady amid lingering inflation concerns. While markets had priced in aggressive easing, the Fed is now signaling just two cuts this year.

Still, Morgan Stanley’s base case is a soft landing: slower-but-steady growth and inflation that stays relatively subdued.

But Shalett warns investors not to fall back into old habits. Instead of leaning on dip-buying, she says it’s time to rebalance portfolios more broadly across geographies, sectors, and asset classes.

As for what comes next, Paul Ashworth of Capital Economics believes Trump may end up sticking with a softer stance.

“Our working assumption now will be that, cowed by the market response, Trump will repeatedly extend the ‘pause,’” he wrote in a Wednesday note. “In return, other countries will offer minor concessions on their own tariffs and trade practices.”