Morgan Stanley thinks it is too early to turn bullish on U.S. stocks which lost all their June and July gains in the first two weeks of August.
That is the opinion of a researcher at the U.S. investment firm that expects a global recession by the end of 2019.
Michael Wilson, Morgan Stanley’s chief U.S. equity strategist and chief investment officer, said stocks looked “more vulnerable than defensive” in a bear market driven by economic expansion concerns rather than trade data.
“The bear is alive and kicking,” Wilson said in an Aug. 12 note.
“We think the failed breakout last week for the S&P 500 confirms we are still mired in a cyclical bear market. Until economic and earnings data stop deteriorating and/or the yield curve re-steepens, we think it is too early to turn bullish.”
Wilson said the fundamentals are too weak to maintain a rally. A further slide in global stocks, which are down 10 percent so far this year, is more likely.
The S&P 500 stock index, which has been largely flat this year, has put on its worst performance during the first seven months of the year since 1997, according to Market Watch.
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“This trend is consistent with the persistently negative sentiment seen during the bear markets of 2008-2009 and 2015-2016 and helps to reinforce our view that we have been in a cyclical bear market since early 2018,” Wilson said.
Citing findings from the National Income and Products Account (NIPA) data released by the Bureau of Economic Analysis, he said labor costs were further weighing down on companies’ performance
“NIPA data confirm our view that labor is eating into profits. This helps explain why companies have reduced the number of hours worked. Are layoffs next?”