Morgan Stanley global head of fixed-income research Andrew Sheets said the firm
is monitoring three risks that could derail the US equity summer rally. First,
renewed conflict with Iran — US strategic petroleum reserve is at historic lows,
reducing the US ability to blunt an oil shock if hostilities escalate. Second,
Federal Reserve policy — the market’s assumption that the Fed will hold rates
through year-end is a key support for equities; that view could be wrong and may
be reversed quickly if inflationary concerns prompt tightening. Third, weakening
AI-related capex — Q2 earnings could show more cautious spending after recent
softness in the stocks of large AI investors; because growth and earnings are
highly tied to AI, a capex pullback would pose downside risk to market sentiment
and forecasts.
