The S&P 500 will bounce back by the end of the year as inflation likely peaked in July, a top Morgan Stanley strategist says

According to a Morgan Stanley strategist, the S&P 500 will return by the end of the year.

Andrew Slimmon said on CNBC that the S&P 500 will end the year close to where it began.

The positioning is bearish. He thinks that the S&P 500 will go higher in the fourth quarter.

After hotter-than- expected inflation numbers sent investors fleeing from risk assets, the US stock markets fell this week. The S&P 500 lost 4.3% on Tuesday, which was the worst day for the index since June 2020.

Inflation rose in August. August's reading is higher than economists' expectations, but lower than July's. Slimmon said that inflation peaked in July and is coming down.

With inflation still high, investors are pricing in a 75-basis-point rate hike by the Fed. The central bank is expected to hike rates by 100 basis points, as the Fed is focused on bringing inflation down to 2%. The fed funds rate has been raised four times this year.

Slimmon doesn't think that financial conditions will last next year.

The consumer has taken the higher prices. He said that that is not going to last forever.

The Fed has been the worst thing that has happened this year. "Maybe next year earnings won't be so good, but the Fed will begin to take their foot off the brake and that will alleviate some of these tightening financial conditions."

He said to buy fear and sell greed in order to find the best stocks to buy. It also means investing in Home Depot and other companies.