Morgan Stanley's strategist said that although the bond market has begun to digest the expectation that the Federal Reserve is "lagging behind the situation", this risk is not reflected in current stock PE ratios.
The team led by Michael Wilson said that investors are most concerned about economic growth issues, not inflation and interest rates.
"The market is looking forward to better economic growth or more policy support to re-boost optimism. In the short term, we do not see any definitive evidence in any direction, which will temporarily cause the stock index to fluctuate in a narrow range," they wrote in a report.
They expect the S&P 500 index to fluctuate between 5,000 and 5,400 points.
"They also believe that the magnitude of profit revisions will vary with the seasons," which is one of the reasons why the third quarter is usually the most challenging for the stock market.