Stocks Expected to Stay Range-Bound as Sticky Inflation and Soft Earnings Limit Breakouts, According to Morgan Stanley

Morgan Stanley Wealth Management's Chief Investment Officer, Lisa Shalett, predicts that sticky inflation and soft earnings will keep US equities range-bound for the next six to nine months, with little potential for significant valuation changes. In her research note, Shalett explains that high inventories, weaker consumer spending, and sticky inflation create additional headwinds for the market. This article dives deeper into these factors and explores the potential implications for investors.

Factors Affecting Range-Bound Stock Market

Inflation, earnings, and consumer spending play critical roles in keeping stocks range-bound.

Several key factors are contributing to the range-bound nature of the stock market. Sticky inflation, weaker-than-expected earnings, and consumer spending dynamics all come into play, resulting in the current market conditions. Let's explore these factors in more detail.

Sticky Inflation

The persistence of inflationary pressures adds an element of uncertainty to the stock market. High inventories and the risk of diminishing consumer confidence create headwinds for the market. It will be interesting to see how the Federal Reserve responds to these inflationary pressures in the coming months.

Weaker-than-expected Earnings

Company earnings are integral to the performance of the stock market. With the possibility of a slowdown in earnings growth over the next quarter, investors are cautious. Challenges such as a higher unemployment rate and lower growth expectations are impacting consumer spending levels, which in turn affects corporate earnings.

Consumer Spending Dynamics

The multitude of factors, such as inflation, employment changes, and overall economic climate, affect consumer spending. Softened consumer spending poses challenges to companies, leading to lower revenue and subdued earnings growth. Monitoring the shifts and patterns in consumer spending will provide insights into the market's direction.

Implications for Investors

Understanding the implications of a range-bound market is crucial for investors.

Recognizing and adapting to the nuances of a range-bound market is essential for investors to make informed decisions. Let's delve into some implications worth considering:

Focus on Coupons as a Source of Returns

Given the range-bound nature of equities, investors may find value in turning towards income-based opportunities such as coupons and high-yield investments. These passive income streams can provide stability amidst volatile market conditions. However, it's still important to conduct thorough research before making investment decisions.

Closely Monitor Treasury Yields

The spike in US Treasury yields presents both challenges and opportunities for investors. Understanding bond market dynamics and the impact it has on other asset classes helps investors identify potential trends in the stock market. Pay attention to the levels of government bond yields to gain insights into market sentiment and the overall investment environment.

Keep an Eye on Consumer-Spending-Linked Metrics

Consumer spending is a key driver of the economy. By closely tracking consumer-spending-linked metrics, investors can forecast market trends and identify areas of potential investment opportunities. Economists' assessments and market research can provide valuable insights.


The stock market is expected to remain range-bound over the next six to nine months, according to Morgan Stanley Wealth Management. Sticky inflation, weaker-than-expected earnings, and consumer spending dynamics contribute to these market conditions. Adapting investment strategies to capitalize on stable income sources and closely monitoring Treasury yields and consumer-spending-linked metrics can help investors navigate through this period of churn in the market.


What is a range-bound market?

A range-bound market refers to a period of time when the price of an asset or investment remains within a certain range, usually marked by support and resistance levels. In this context, it means that the stock market is expected to have limited price movements and remain within a defined range for the foreseeable future.

How does sticky inflation affect the stock market?

Sticky inflation, characterized by persistent inflationary pressures, creates uncertainty in the stock market. It may lead to high inventories, decreased consumer confidence, and challenges for companies. As a result, it can have a dampening effect on stock market valuations.

What are consumer-spending-linked metrics?

Consumer-spending-linked metrics are indicators that measure consumer spending behavior. These can include data on retail sales, personal consumption expenditure, consumer confidence, and other metrics that reflect consumer purchasing patterns. Tracking these metrics provides insights into overall economic health and can be helpful for forecasting market trends.

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