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Morgan Stanley equity strategists, who have been prescient with their market calls during this bearish stint in the market, highlight that back-end rates fell as predicted which pushed the tactical stock rally higher, also as predicted. However, stocks are now right at the firm’s original upside targets and they now recommend selling again before the Bear returns in earnest.
“As predicted, falling interest rates at the back end have led to modest, further gains for this bear market rally,” the strategists commented. “However, with last week’s price action, the S&P 500 is now right into our original tactical target range of 4000-4150. While the index has modestly exceeded its 200-day moving average and the breadth continues to expand, the downtrend from the beginning of the year remains in place. This makes the risk-reward of playing for more upside quite poor at this point, and we are now sellers again.”
They are telling investors to stay defensively oriented with Healthcare, Utilities, and Staples as rates are likely to fall further into next year as growth and inflation continue to slow.
They added that growth stocks are unlikely to benefit from falling rates from here, given the risk to earnings.
On labor markets, the strategists note while they are still solid, cracks are starting to form.
