A snippet from a Morgan Stanley piece on risks for the S&P 500

POSITIVES:

1. COVID-19 Resurgence:

  • As long as the growth in COVID-19 infections doesn't result in hospital-system breakdowns, we forecast economic gains continuing and Americans powering through

2. Trade Tensions:

  • While tensions with China are likely to dominate the election rhetoric of both parties, the fragility of the global recovery during this pandemic suggests that world leaders will maintain a much more pragmatic stance that keeps trade policy unchanged

3. US Post-Election Policy Shifts:

  • Politics may loom large, but material policy shifts seem unlikely in the near-term. While many polls now suggest that a Democratic sweep in November is plausible, we don't see immediate tax hikes and costly expansions of the healthcare system as a likely outcome

RISKS:

4. Disappointing Earnings:

  • The risk that many companies may miss earnings expectations has grown, especially as more of them pull their guidance due to economic uncertainty. Meantime, investors are crowding into a handful of popular tech names with sky-high valuations

5. Rising Inflation:

  • The combination of money-supply growth and a weaker dollar, among other factors, point to rising inflation expectations that could raise long-term interest rates and lower equity valuations

6. Legislative Inaction on More Stimulus:

  • Congress will be going into August recess soon. Failure to extend unemployment benefits would likely expose the growing level of permanent job losses that are appearing below the surface of the economy

MS recommend:

  • Put emphasis on diversification, adding gold, corporate credit and international stocks to portfolios that are overweight the S&P 500 inde
  • look for July fiscal stimulus renewal and tech-sector earnings guidance, which could alleviate some of the concerns I'm most focused on