Core Viewpoint - Morgan Stanley suggests that the U.S. stock market may experience a phase adjustment in Q3, primarily due to the lagging impact of tariffs and the fluctuating policies of the Federal Reserve. However, the current bull market is not expected to end, with adjustments seen as opportunities for investment rather than a market termination [1][3][7]. Market Performance - Since the low in April, the S&P 500 index has rebounded over 26%. As Q3 approaches, concerns arise from weak non-farm employment data and inflation worries due to tariffs, leading to market uncertainty about the continuation of the bull market [3][4]. Bull Market Logic - The bull market's foundation is rooted in a V-shaped recovery of earnings revision breadth (ERB), which has rebounded from -25% in April to +10% currently. This indicator is crucial for confirming market bottoms and has historically led earnings surprise data [6]. Tariff Impact and Federal Reserve Policy - The impact of tariffs is expected to reflect in corporate earnings reports in Q3, particularly affecting consumer goods sectors with weak pricing power, while industrial firms that can pass on costs will be less affected. Labor market data adds to policy uncertainty, with the bond market pricing in an 88% chance of a Fed rate cut in September [9]. Earnings Growth and Fed Policy Outlook - Despite short-term risks, the outlook for the next 12 months remains bullish, supported by three main factors: increased certainty in earnings growth, with consensus predicting a 9% EPS growth for the S&P 500 in 2025 and 14% in 2026; the eventual shift in Fed policy towards rate cuts; and resilience in valuations and liquidity, with the S&P 500's dynamic P/E ratio remaining at reasonable levels [10].