The current stock market rally may be over after breaching 950 on the S&P 500 last week, Morgan Stanley strategist Jason Todd said Tuesday.

The current stock market rally may be over after breaching 950 on the S&P 500 last week, Morgan Stanley strategist Jason Todd said Tuesday.

"Equity markets now implicitly need a V-shaped recovery to sustain further gains," Todd said in a note to the firm's clients. "We do not expect such a recovery and therefore believe the next move is more likely to be down than up."

The S&P 500 index declined 1% in afternoon trading to below 915 on concerns that market gains may be getting ahead of a slower pace of economic recovery. Todd's note may have contributed to those fears; he doesn't believe the recent rally is the beginning of a new bull market.

Todd's last market call turned out to be too conservative; he told investors to take profits at the 850 level on the S&P 500, which was breached in April. He said that he wasn't completely certain about his current 950 call and that there could be another leg up to the 950-1,000 range.

Todd said any correction is likely to end well above the March lows, as long as economic data don't turn sharply more negative. The market will likely trade in a range, he said, with 950 on the S&P 500 marking the upper range with 850 to 900 on the downside.

The risk of a more significant correction, however, is rising, he said, and could come from several factors, including a sell-off in Treasury bonds that pushes the 10-year yield above the 4%-4.25% level, a sharp rise in oil prices, a "disorderly" decline in the dollar, a decrease in liquidity support from the Federal Reserve, weaker-than-expected second-quarter earnings, or a deterioration in the momentum of the economic recovery.

Todd also raised his earnings price targets for the S&P 500 to account for market gains to $51 in 2009 from $40 and still below the consensus estimate of $55.

-By Ed Welsch, Dow Jones Newswires;