Sticky inflation and weaker earnings mean stock prices aren't going anywhere, Morgan Stanley strategist says

• Stock prices are likely to be "range-bound" for the next six to nine months, says Morgan Stanley.
• Sticky inflation and soft earnings will lead to "churn" in the market, Lisa Shalett said.

Stocks have been locked in a low-volatility snoozefest for the past few months – and it's unlikely that valuations will rise or fall significantly anytime soon, according to Morgan Stanley Wealth Management.

Equities will stay "range-bound" for the foreseeable future, with sticky inflation and weaker-than-expected earnings likely to crush any hopes of a breakout, CIO Lisa Shalett said Monday.

"Amid an already complicated mix of conditions, recent data implies additional headwinds: high inventories, a weaker consumer and sticky inflation," she wrote in a research note.

"At best we see US equities range-bound over the next six to nine months, with the back-and-forth between earnings and multiples producing only churn."

"We are content to source returns from coupons, which remain at some of the highest levels in over a decade," Shalett added, referring to US Treasury yields spiking to the highest level for 16 years. "Watch consumer-spending-linked metrics, which are likely to soften."

Stocks started 2023 on a ChatGPT-fueled tear, with the S&P 500 soaring 20% between the start of January and the end of July.

But the index has stalled since, slipping 3% over the past 50 days on low summer trading volumes, as well as a heightened fear among investors that the Federal Reserve will have to hold interest rates at a higher level for longer to crush soaring prices.

August's Consumer Price Index report did nothing to quell those worries, with inflation speeding up for a second month in a row, rising 3.7%.

As well as flagging sticky inflation, Shalett warned a slowdown in company earnings over the next quarter could also sting stocks, with a combination of higher unemployment and lower growth likely to drive a decline in consumer spending levels.

"We see evidence that we are late in the economic cycle and that earnings realization and margin improvement will be hard to come by," she wrote in Monday's note.