(Reuters) -Morgan Stanley turned bullish on most major U.S. assets, upgrading its stance on stocks and Treasuries to "overweight", bolstered by reduced tariff uncertainty, no chance of a recession and the room for further rate cuts.

However, the one exception was the dollar, which the Wall Street brokerage expects will continue to remain under pressure due to "a convergence in U.S. rates and growth to peers", it said in a note late on Tuesday.

"We expect USD assets to broadly outperform the rest of the world, with the notable exception being the dollar itself ... against a backdrop of a slowing but still expanding global economy," Morgan Stanley said.

While it does not expect either a global or U.S. recession, it does estimate that global real GDP growth will drop to 2.5% by the end of this year, from 3.5% in 2024.

The Trump administration's tariff salvo this year has weighed on global growth and spurred investors to rotate their U.S. asset holdings into other regions. However, investor sentiment for U.S. assets has revived in the aftermath of a U.S.-China trade deal.

Morgan Stanley expects U.S. corporate earnings revisions to bottom in the near term and a weak dollar to lift the income for multinational companies.

The brokerage also expects equities to get a boost from easing inflation and further interest rate cuts.

As a result, it now expects the benchmark S&P 500 index to hit 6,500 points in the second quarter of 2026, instead of the end of 2025. The index closed at 5940.46 points on Tuesday.

It expects the 10-year Treasury yield to be at 3.45% by the second quarter of 2026. The yield ended at 4.481% on Tuesday.

However, it projected that the dollar index, already down 8% to 99.76 so far this year, to weaken further.

"We now forecast the DXY to fall an additional 9% over the next 12 months to 91, with USD weakness most pronounced against its safe-haven peers - EUR, JPY, and CHF," Morgan Stanley said.

The brokerage forecasts EUR/USD at 1.25 and USD/JPY at 130 by the second quarter of 2026.