A downgrade for the US stock market

G'morning, readers. Two of the biggest Wall Street firms are forecasting stormy markets to come — but one top analyst is far more optimistic thanks to his outlook on labor trends.

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1. BlackRock just downgraded US stocks. The world's largest asset manager blamed the demotion on the growing threat of a Fed-induced recession. 

The central bank has been walking a precarious line between trying to tame inflation and avoiding a recession. BlackRock, which has roughly $10 trillion under management, demoted US stocks to "neutral" on Monday. 

"The Fed's hawkish pivot has raised the risk that markets see rates staying in restrictive territory. The year-to-date selloff partly reflects this, yet we see no clear catalyst for a rebound," BlackRock said. 

Morgan Stanley echoed BlackRock's bearishness, with top analyst Mike Wilson saying it is still too early to be bullish on stocks.

Wilson expects the S&P 500 to drop another 14%, to about 3,400, before the end of second-quarter earnings season. Already, the index has sunk 18% year to date, dipping briefly into a bear market one day last week.

But the turmoil hasn't dampened the optimism of Fundstrat's Tom Lee. Bad economic news is likely good news for stocks, Lee said, and investors are increasingly seeking clues for what might put an end to the highest inflation in four decades.

"Incoming data could show labor market weakening ... and thus [the] job market could be cooling at a pace faster than implied by tighter financial conditions," he said.

In other news:

2. RBC said these beaten-down internet stocks have the most upside in the sector. Internet stocks can be squeezed into two groups, according to Brad Erickson of RBC — those that were squeezed for little reason, and those that are in trouble. Here are his four favorite stock picks. 

3. Crypto venture capitalists shared their insights into how the industry bleeds a massive $200 billion in market value every single day. "The great thing about bear markets is that you can sleep at night," one analyst said. "You don't have to FOMO in." 

4. A Federated Hermes strategy chief who warned about stagflation two months just detailed a potential recession. Phil Orlando warned investors in March about stagflation — and he broke down why his firm is loading up on cash as "cracks in the armor" in the economy begin to form.

5. The White House may look to tap a rarely used emergency diesel reserve as the shortage of the key fuel persists. Prices for diesel have hovered near record highs, and an administration official told CNN that the nation may turn to the Northeast Home Heating Oil Reserve — which has only been used once before.

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