Morgan Stanley warns of potential market downside

Equities are likely to put in a cyclical top later this year, analysts argue

Apr 17, 2018 @ 11:28 am

By Bloomberg News

Investors need to prepare for downside because the end of the economic cycle is near and U.S. markets are priced for best-case scenarios, Morgan Stanley says.

While fiscal stimulus is supportive of growth in the near term, the benefits are already likely "in the price" and increase the potential downside for markets at the end of the cycle, Morgan Stanley strategists including Michael Zezas, Matthew Hornbach and Andrew Sheets wrote in a note Tuesday.

They also said U.S. stock valuations peaked before the tax bill was enacted, with a cyclical top for equities coming later this year, while peak margins and rate of change on organic earnings growth will be coming by late 2018 or early 2019.

"There's less reason to behave like it's 'morning in America' than 'Happy Hour in America,'" the report said. Markets are "closer to the end of the day than the beginning."

The report said the fiscal expansion factor supports a range-bound path for stocks, as well as a flatter U.S. Treasury yield curve with a lower yield bias.

"We advocate a focus on sector and stock-specific alpha as these late-cycle dynamics portend narrowing markets and a cyclical top for equities later this year, in our view," the strategists said. "In Treasuries, we see the curve continuing to flatten on Fed hikes, and yield downside as the year progresses and the economic outlook becomes more mixed."

(More: Investors flee high-yield bond funds and ETFs)

0
Comments

What do you think?

View comments

Recommended for you

Latest news & opinion

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

SEC slaps Lockwood with $200,000 fine over unseen trading costs to clients

Clients were forced to pay fees in addition to the usual wrap charges, the regulator maintains.

Gotcha! 10 lessons from brokers gone bad

These cases show why regulators nabbed reps and firms, and how to avoid their fate.

Tax-credit investigation may trip up Wells Fargo

Justice Department is investigating bank's dealings in tax credits for low-income housing, sources say.

10 biggest boomtowns in America

These metro areas are seeing the biggest influx of people, work opportunities and business growth.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print