An intriguing article which appeared in today's Business Insider:
MORGAN STANLEY: The stock market has reached a 'tipping point' - and the market's most beloved companies could be hit hardest
Note: This is the Morgan Stanley equities team, which AFAIK invest on behalf of the company. Morgan Stanley Wealth Management, which advises a string of wealthy retail clients, already recommended taking profits in the consumer discretionary sector last month.
Like it or loathe it, the job of these analysts is to anticipate market cycles and evade the pain if they can. (Though I know many here object to this on a philosophical or metaphysical basis. Which is fine, we all have our point of view.)
My main problem with this article is that they don't mention the specific relationship between rising interest rates and the subsequent tightening of the free flow of discretionary income which tech-gadget and other luxury-item companies rely on for their business model.
Anecdotal data and statistical data (on low levels of savings and record-high levels of consumer debt) tell us that people are borrowing money in order to buy things like cars and smartphones. Will people still do this as borrowing becomes more expensive?
A liquidity crunch would pulverise the markets in a heart-beat. But even a modest decrease of borrow-and-spend behaviour could just lead to a gradual downturn in certain sectors. They could peter out over a number of years.
Morgan Stanley's choices for a defensive portfolio are interesting. I'm contemplating food commodity stocks at their cyclical lows (coffee, sugar, corn) and, more sceptically, precious metals stocks (gold, silver).
What do others here think - both of Morgan Stanley's reasoning and the best prospects for capital preservation within the markets?
MORGAN STANLEY: The stock market has reached a 'tipping point' - and the market's most beloved companies could be hit hardest
[Morgan Stanley] favors energy, utilities, and financials over tech and consumer discretionary stocks.
The fact that [FAANGs] are starting to falter is a glaring late-cycle signal for Morgan Stanley, which sees a rotation into unloved names playing out.
Utilities, which offer a steady return similar to bonds, may look like an odd choice in an era of rising rates, but Morgan Stanley said more defensive stocks might prove their worth once the US economy started to slow - and that could happen faster than markets expect.
It said US growth was likely to be interrupted by a cyclical bear market as soon as next year, once the boost from President Donald Trump's tax cuts wear off.
"Our concern lies with the fact that 2019 consensus forecasts do not anticipate such a dynamic at all," the analysts said.
Note: This is the Morgan Stanley equities team, which AFAIK invest on behalf of the company. Morgan Stanley Wealth Management, which advises a string of wealthy retail clients, already recommended taking profits in the consumer discretionary sector last month.
Like it or loathe it, the job of these analysts is to anticipate market cycles and evade the pain if they can. (Though I know many here object to this on a philosophical or metaphysical basis. Which is fine, we all have our point of view.)
My main problem with this article is that they don't mention the specific relationship between rising interest rates and the subsequent tightening of the free flow of discretionary income which tech-gadget and other luxury-item companies rely on for their business model.
Anecdotal data and statistical data (on low levels of savings and record-high levels of consumer debt) tell us that people are borrowing money in order to buy things like cars and smartphones. Will people still do this as borrowing becomes more expensive?
A liquidity crunch would pulverise the markets in a heart-beat. But even a modest decrease of borrow-and-spend behaviour could just lead to a gradual downturn in certain sectors. They could peter out over a number of years.
Morgan Stanley's choices for a defensive portfolio are interesting. I'm contemplating food commodity stocks at their cyclical lows (coffee, sugar, corn) and, more sceptically, precious metals stocks (gold, silver).
What do others here think - both of Morgan Stanley's reasoning and the best prospects for capital preservation within the markets?
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