By Senad Karaahmetovic

Morgan Stanley’s Michael Wilson says the ongoing bear market rally could extend by another 5%.

To close out the week, it rose nearly 2.5% Friday. The benchmark U.S. index is now 9.13% higher than the previous lows earlier in the month.

For Wilson, the near-term target for the S&P 500 was 3800 and that was practically reached 2 weeks ago. The focus is on PMIs and earnings revisions in the interim.

“Higher inflation and slower growth are now the consensus view but that doesn’t mean it’s fully discounted. More equity prices rise the Fed will become more hawkish. Falling PMIs indicate at least 10 percent risk while a recession could mean more. Sustainable rallies will require growth rates to bottom, something we don’t foresee until later this year,” Wilson told clients in a note.

He reiterated his bearish position despite the sharp rise in certain sectors (e.g. Consumer discretionary.

“We remain firmly in the bear market camp but relief rallies can happen at any time, and it appears we are now in the midst of one. As shorts try to protect what was one of the most successful one-way trades this year, consumer discretionary stocks have been demonstrating a strong tactical rally. Not only is the sector the worst performer YTD (-25%) but it’s broken a 10-year uptrend relative to the S&P 500. In other words, we were due for a rally in the sector, but at the end of the day, we think it’s nothing more than a bear market rally that will eventually fade,” Wilson added.

A prominent strategist says it is too early for the Fed to pivot.

“The bottom line is that inflation remains too high for the Fed’s liking and so whatever pivot investors might be hoping for will be too immaterial to change the downtrend in equity prices, in our view. However, that’s not to say it can’t get animal spirits moving higher in the short term,” Wilson added.