Morgan Stanley Says Stock Market Has Priced in Tariff Best-Case Scenario, Warns Stagflation Issue Looming for Magnificent 7 Firms

Chris Toomey, a managing director at Morgan Stanley, thinks the market hasn’t priced in the risks of the Trump Administration’s tariffs.

Toomey says in a new interview with CNBC that equities are still likely “range-bound,” suggesting that the S&P 500 may correct after rallying close to 6,000 points.

“I think the concern we’ve got is that while we’ve taken the worst-case scenario with regards to the Liberation Day, we’re in a situation where I think the market’s right now probably pricing in the best-case scenario. I think everyone’s talking about the fact that there are probably going to be 10% tariffs across the board, 30% for China. I think that’s kind of baked in.”

Toomey also warns of the potential for stagflation, an unfavorable economic environment which is dominated by stagnant economic growth, high inflation and high unemployment.

The Morgan Stanley executive notes that companies with connectivity to China aren’t doing as well due to the tariffs.

“You can see that in the Magnificent 7, and you can see that in the rest of the overall S&P 500. So in our minds, that’s going to be a stagflation issue. If we do see GDP growth coming down, that might give us the opportunity for the Fed to step in next year and start cutting rates.” 

As of Tuesday’s close, the S&P 500 is trading at 5,935 points.

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