Investors should enjoy this recent market rally while it lasts, Morgan Stanley's Michael Wilson said. The Wall Street firm's chief U.S. equity strategist believes the recent rally, which follows the Federal Reserve's aggressive action to bring down inflation, won't last long — as corporate earnings are poised to start deteriorating. "While the bond market is starting to assume they get inflation under control, it may come with a heavier cost than normal, potentially a recession while they are still tightening, which may leave a very small window for stocks to work before earnings surprise on the downside," Wilson said in a note to clients. "We think that window is now but it can shut quickly. Risk reward is poor after the recent rally so trade accordingly as time may be running out," he added. The S & P 500 just notched its best month since November 2020, gaining more than 9% in July, as investors' fears about the aggressive pacing of rate increases started to wane and they bet that inflation has perhaps peaked. The rally in July followed an 8% sell-off in June. Wilson, one of Wall Street's biggest bears, said the prior decline in stocks didn't fully reflect the risk of a recession as earnings typically fall much more drastically in a downturn. "While talk of recession was rampant during that sell-off and valuations reached our target P/E of 15.4x, we do not think it properly discounted the earnings damage that will entail if we are actually in a recession right now," Wilson said. If an economic downturn arrives, the equity benchmark could fall toward 3,000, or off about 27% from Friday's close, Wilson said. He added that the S & P 500 could bottom in the range of 3,400 to 3,500 if the U.S. avoids a recession. The benchmark hit a low of 3,636.87 on June 17. — CNBC's Michael Bloom contributed to this report.