Firms face COVID-level uncertainty amid Trump tariffs - Morgan Stanley

Investing.com - Companies now face more uncertainty over the broader outlook than they have since the early days of the COVID-19 pandemic, according to analysts at Morgan Stanley.

In a note to clients, the strategists led by Michael Wilson said that this murkiness is weighing on earnings revisions, accelerating a move lower in financial projections.

U.S. President Donald Trump's erratic tariff policy has fueled a sense of uneasiness among many businesses, with several noting that the potential impact of the levies on economic activity has made it more difficult to plan for the future.

At the same time, it remains unclear if Trump and White House officials will be able secure dozens of deals with individual countries during an ongoing partial 90-day pause to elevated reciprocal tariffs. Even during these negotiations, universal 10% tariffs and separate duties on steel, aluminum, and autos remain in effect.

The U.S. has also continued to raise tariffs on China to at least 145%, making Beijing the central target of its push to overhaul decades of American trade practices. China has responded with 125% import duties on U.S. goods.

Meanwhile, the Federal Reserve appears to be adopting a "wait-and-see" attitude to future interest rate decisions as it looks for clarity around the effect of the tariffs to emerge. The central bank's slow approach to possible rate cuts has drawn the ire of Trump, who has revived threats of ousting Fed Chair Jerome Powell.

Against this backdrop, the Morgan Stanley analysts have predicted that the benchmark S&P 500 index will trade in a range of 5,000 to 5,500 in the near term "given the constraints on both the upside and downside." The average ended its last session on Thursday at 5,282.70.

Investors should be on the hunt for "high quality single stock opportunities in industries where the set up is more de-risked," the analysts argued. Among the names they highlighted were Ecolab (NYSE: ECL) in the materials sector, Halozyme (NASDAQ: HALO) Therapeutic and Zoetis (NYSE: ZTS) in the pharmaceuticals industry, and Arista Networks (NYSE: ANET) and Apple (NASDAQ: AAPL) in technology hardware.

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