Global growth may soar and investors aren’t ready, says Morgan Stanley
Something wicked this way comes?
Investors seem a little rattled as equities close in on fresh all-time highs, with stock futures pointing to a struggle ahead. The S&P 500 SPX, -0.01% finished slightly weaker, but 1.6% away from a July 26 record close on Monday. Moving even further from record territory was the Nasdaq COMP, -0.19% , though an Apple event coming later could re-energize the tech sector.
Of course when it comes to new highs, it’s worth considering they beget newer highs rather than trigger a selloff. That brings us to our call of the day, from Andrew Sheets, chief cross-asset strategist at Morgan Stanley, who says the global economy may be poised for an upside surprise and investors aren’t ready for it.
In a note to clients that published over the weekend, Sheets explores the possibility that his bank’s “below-consensus” view on global growth could be wrong, and better days may be ahead if trade tensions thaw further, China offers more stimulus and global manufacturing woes start to bottom out.
“In this scenario, yields and inflation expectations would rise meaningfully, as markets assume less easing is needed and better days lie ahead,” he said. As a result, the yield curve would steepen, reflecting expectations for rising inflation and stronger growth. As well, financial stocks would rally, and smaller stocks and those linked to the economic cycle would gain on hopes the global growth engine is stirring to life.
But Sheets says few investors are even positioned for an early cycle recovery.
Sheets says his bank is cautious on global equities and credit. But he describes last week’s stock rally as a “shot across the bow,” adding that “if we’re wrong and growth is set to reaccelerate, the market isn’t positioned for it. The moves could be large.”
“As you can see for a long period value outperformed, but now growth is outperforming for almost 15 years. Very long cycles which could make it hard for investors to continue to harvest the value premium,” he tells MarketWatch.
DowYM00, -0.09% , S&PES00, -0.17% and NasdaqNQ00, -0.29% futures are lower. GoldGCZ19, -0.64% is also down.
Oil CLV19, +1.09% is up and headed for a five-session win streak, while the dollarDXY, +0.10%is up, mostly against the pound GBPUSD, +0.1620% as a Brexit crisis bubbles over.
Europe stocksSXXP, -0.26% are lower, while Asia marketsADOW, +0.37% finished mixed, with some focus on weak China producer prices.
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