Investors should enjoy this latest market rally while it lasts, said Morgan Stanley’s Michael Wilson. The Wall Street firm’s chief U.S. equity strategist believes the recent rally, which follows the Federal Reserve’s aggressive action to bring down inflation, will not last long — as corporate earnings are expected to begin to deteriorate. “While the bond market is starting to assume they̵[ads1]7;re getting inflation under control, it could come at a higher-than-normal cost, potentially a recession while they’re still tightening, which could leave a very small window for stocks to perform before earnings surprise on the downside, ” Wilson said in a note to clients. “We think the window is now, but it could close quickly. The risk reward is poor after the recent rally, so trade accordingly as time may run out,” he added. The S & P 500 just hit its best month since November 2020, rising more than 9% in July as investors’ fears about the aggressive pace of rate hikes began to ease and they bet that inflation may have peaked. The rally in July followed an 8% selloff in June. Wilson, one of Wall Street’s biggest bears, said the earlier decline in stocks did not fully reflect the risk of a recession because earnings typically fall much more drastically in a downturn. “While there was a lot of recession talk during that sale and valuations reached our target P/E of 15.4x, we don’t think that properly discounted the earnings damage that will result if we are actually in a recession right now,” Wilson said. If an economic downturn comes, the stock benchmark could fall toward 3,000, or about 27 percent from Friday’s close, Wilson said. He added that the S&P 500 could bottom out in the 3,400 to 3,500 range if the US avoids a recession. The benchmark index hit a low of 3,636.87 on 17 June. — CNBC’s Michael Bloom contributed to this report.