There is unlikely to be a lasting market bottom unless three conditions are met, according to Morgan Stanley. The investment bank reiterated that it expects the bottom of this bear market to be between 3,000 and 3,400 points for the S&P 500, its analysts, led by U.S. equity strategist Mike Wilson, wrote. in a memo dated October 3. They added that this forecast “is now tilting downwards”. The index closed at 3,790.93 on Tuesday. “We…remind readers that the later legs of every bear market are very difficult to trade as volatility becomes extreme,” they wrote. “None of the conditions we were looking for to end this bear market are in place.” Wall Street is coming off a tough month, with the Dow Jones and S&P 500 posting their biggest monthly losses since March 2020. Monday, however, brought something of a relief rally. Morgan Stanley pointed out that until two or three of the following conditions are met, the bank is “unlikely to call a sustainable bottom” to the markets: S&P 500 Equity Risk Premium at or above 450 basis points . Currently, the ERP is at 276 basis points, Morgan Stanley noted. This measures the spread of US equity returns relative to long-term government bonds and indicates how well the stock market will outperform risk-free debt assets. Rising consensus EPS NTM (next 12-month earnings per share) for the S&P 500 at or below $225. The bank said it is currently at $237. ISM Manufacturing PMI title at or below 45. This is an indicator of the health of the US manufacturing sector. The September data, which was released earlier this week, fell to 50.9 in September from 52.8 in August – barely in expansion territory. Morgan Stanley noted that it takes a long time for earnings per share over the next 12 months to decline for the S&P 500, “because it’s a very high-quality, diversified index and companies are loath to throw l ‘sponge on the coming quarters until they have to.’ “It seems like more and more companies are reaching that point where they can’t fight anymore,” he added. Stocks are likely headed lower without any change in strategy from the US Federal Reserve, but that could soon change anyway, according to Morgan Stanley. “Absent a pivot from the Fed, we would not be surprised if these three conditions were met by mid-November,” the bank said, adding that the change at the Fed was likely to happen. in stages, as it is unlikely to reverse “too soon” given the inflationary threat. The crucial dollar The US dollar, which has been surging all year — much to the dismay of many companies — is another important factor that Morgan Stanley is looking at. “Like it or not, the world is still dependent on the US dollar, which provides oxygen to global economies and markets,” he said. “The US dollar is very important to the direction of risk markets and that is why we are monitoring M2 growth so closely,” the bank added, referring to a broad measure of money supply. The bank cited a number of reasons why US dollar liquidity is so tight right now. These include rising rates and shrinking balance sheets, rising oil prices as well as inflation of many goods being bought and sold in dollars, the bank wrote. “In our view, such tension is unsustainable as it will lead to intolerable economic and financial tensions,” he added.