(Bloomberg) -- Investor speculation that the Federal Reserve will cut rates soon continues to support stock prices, a strategy fraught with risk because it means “things actually are weak,” Lisa Shalett at Morgan Stanley said on Bloomberg Surveillance. 

The market has an “extraordinarily glass half full” view that the central bank will engineer a soft landing of the economy, and investors will “have to cope with the fact that multiples may contract at the same time that earnings begin to fall and that’s a very kind of dangerous combination,” the firm’s chief investment officer for wealth management said.

There are signs from early earnings reports that the bank woes may already be rippling through the economy. Shalett said that credit contractions are going to create “material and systemic ripples” on economic growth. 

“We are looking at the impacts to small- and medium-sized businesses, and we know from some of the surveys we are already getting out of NFIB and the small business community that they are feeling it,” she said. “They are signaling that in terms of the 40-year low in terms of indicating that this is a good time to invest and expand their businesses.” 

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