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Is the rally in the US stocks threatened?
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Loading...The beginning of 2019 was quite strong for US stocks. But according to Morgan Stanley, the second half of the year will not be as beneficial to them.
Currently, markets assess the so-called "Goldilocks" scenario - an environment of stable but inflation-free economic growth, and in fact, the US economy performs better than expected, with the exception of the effect of rising prices.
But all this seems to be changing. The skepticism of Morgan, and especially the strategist Andrew Sheets, lies in three moments:
- Goldilocks conditions are coming to an end
- The divergence between US growth and that of the rest of the world is starting to narrow
- The gap between prices and foundation starts to fade
- This slight "stumbling" raises the attention of investors. Yet, the dominant concern remains about whether the market can continue to rise and how much. However, the escalation of the trade war for the moment is hindering the endless rally.
Concerns about the real capacity of the economy and economic activity revolve around whether inflation will be triggered. However, these concerns do not seem to be mitigating, although the markets are currently calculating benign scenarios.
In terms of the difference between the capacity and activity of the US economy and that of the rest of the world, Morgan Stanley has been adhering to its idea as early as November 2018. Then they first said a reversal of the US economy. "Our reversal scenarios are just a delay, and it's still up to date." - says the strategist.
In December, when expectations of US economic growth and real data began to diverge, the dollar weakened. The bank expects this scenario to repeat over the next 12 months.
The Investment idea, which the bank provides, is:
- Shares and government securities
- International stocks. Japanese with priority
- State government securities instead of the German bund
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
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