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Investors return to the bad habits that doomed the markets last year
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Loading...Stocks have had a good start to 2019, and they've made a big recovery since almost entering into a bear market just two months ago. But Morgan Stanley's chief US equity strategist says investors shouldn't get too comfortable.
"The market is still not convinced we are out of the woods on growth concerns" Michael Wilson said.
The turnaround for stocks began after Christmas last year, stoked by rising optimism about the global economy, hope that the US and China are getting closer to solving their trade fight, and better financial conditions after Fed will be more patient with interest rates.
The S&P 500 has soared almost 18% since its low at the end of last year, including a gain of more than 10% so far this year.
"Rarely, if ever, have we witnessed such a dramatic reversal of returns in back to back months," Wilson wrote. He says investors are reading the situation correctly, and the global economy will reach a new low point in the next few months and then start to recover.
But his entire point comes with one large caveat: The ongoing short-term rally has been led by expensive and relatively volatile high-growth stocks, and that could become a problem if investors start to lose confidence.
If that sounds familiar, that's because it's the exact same risk-taking behavior that doomed markets at the end of 2018.
If investors look a little further they'll also see that traditionally defensive stocks are still the best performers and that's another development that bothers him.
He sees it as a sign of worry on Wall Street. While tech and other high-growth areas are doing well, investors still prefer safer picks. In terms of what investors can do, Wilson says he's keeping his highest ratings on more defensive stocks like utilities or household products makers.
Source: Business Insider
Image: Pixabay
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