There’s unlikely to be a sustainable market bottom unless three conditions are met, according to Morgan Stanley. The investment bank reiterated that it expects the low for this bear market to come between 3,000 and 3,400 points for the S & P 500 , its analysts, led by U.S. equity strategist Mike Wilson, wrote in an Oct. 3 note. They added that this forecast “now skews toward the lower end.” “We … remind readers that the last few innings of every bear market are very challenging to trade as volatility becomes extreme,” they wrote. “None of the conditions we have been looking for to call an end to this bear market are in place.” Wall Street is coming off a tough month , with the Dow and S & P 500 notching their biggest monthly losses since March 2020. Monday, however, brought something of a relief rally. Morgan Stanley stressed that until two or three of the following conditions are met, the bank is “unlikely to call a sustainable low” to markets: S & P 500 Equity Risk Premium at or above 450 basis points. Currently, the ERP is at 276 bps, Morgan Stanley noted. This measures the spread of returns of U.S. stocks over long-term government bonds, and is a indicator of how well the stock market will outperform risk-free debt assets. Bottom-up consensus NTM EPS (next 12 months earnings per share) for the S & P 500 at or below $225. The bank said currently it is currently at $237. Headline ISM Manufacturing PMI at or below 45. This is a gauge of the health of the U.S. manufacturing sector. September’s data, which was released earlier this week , fell to 50.9 in September from 52.8 in August — barely in expansion territory. Morgan Stanley noted that it takes a long time for the next 12 months earnings per share to fall for the S & P 500, “because it’s a very high quality, diversified index and companies are loathe to throw in the towel on the future quarters until they have to.” “It appears that more companies are reaching that point where they can’t fight it anymore,” it added. Stocks are likely headed lower without any change in strategy by the U.S. Federal Reserve, but the situation could soon turn anyway, according to Morgan Stanley. “In the absence of a Fed pivot, we wouldn’t be surprised if all three of these conditions are met by mid November,” the bank said, adding that shift at the Fed was likely to come in stages, as it is unlikely to reverse “too soon” given the inflation threat. The crucial dollar The U.S. dollar , which has been surging all year — much to the consternation of many companies — is another important factor that Morgan Stanley is looking at. “Like it or not, the world is still dependent on US dollars, which provide the oxygen for global economies and markets,” it said. “The US dollar is very important for the direction of risk markets and this is why we track the growth of M2 so closely,” the bank added, referring to a broad measure of the money supply. The bank cited a number of reasons as to why U.S. dollar liquidity is so tight right now. These include rising rates and shrinking balance sheets, higher oil prices as well as inflation in many goods bought and sold in dollars, the bank wrote. “In our view, such tightness is unsustainable because it will lead to intolerable economic and financial stress,” it added.