By Lewis Krauskopf

NEW YORK, (Reuters) – A recovery in U.S. stock prices may still have 5% left but it likely will remain a “bearish market rally,” according To Morgan Stanley (NYSE)’s Equity Strategist, sees negative trend in corporate earnings.

On Friday, it had rebounded 6.6% after closing down 18.7% on May 19. On Tuesday morning, the benchmark index lost 1%.

Morgan Stanley Equity Strategist Michael Wilson stated that the index may rise another 5% in a note released before Tuesday’s market opening. “It is not surprising that we are now experiencing some relief considering how oversold this market has become.”

Wilson explained that Wall Street has become more worried about higher inflation and slower economic growth. However, Wilson noted that this does not mean they are completely ignoring the possibility.

Wilson said, “We are still in the bearish market camp. But relief rallies can occur at any time. It appears that we’re now in one.” He projects the S&P 500 will be around 3,400 by mid August, which would be an 18% decline from Friday’s close.

The market has already had one rally that faded this year, with the S&P 500 rising some 11% in March before giving up all of those gains.

In part, the Federal Reserve’s plans to slow down its rate hikes later in this year were behind the latest rally. BofA strategists stated last week that the central bank will likely slow down its rate increases in September. They would leave their benchmark overnight rate of 1.75%-2%, if conditions worsen.

The Fed’s path of tightening is however far from certain.

Christopher Waller (Fed Governor) stated on Monday that central banks should be willing to hike interest rates by one-half percent at each meeting, until inflation has been controlled. Widely expected, the Fed will raise rates by 50 basis point at its next meeting. This is after having raised rates by 75 basispoints so far in this year.