Morgan Stanley and Bank of America both said that in the face of the US economy's softening, a few individual stocks are driving market growth, indicating that investors are more concerned about the prospect of economic growth.
Michael Wilson, chief US stock strategist for Morgan Stanley, said on Monday that many low-quality and economically sensitive areas of the market are lagging behind, in addition to unexpected downward data this year and fewer stocks affecting market trends.
The Russell 2000 small-cap index has risen 0.5% so far this year, far behind the S&P 500, which is driven largely by technology giants.$NVIDIA (NVDA.US)$ and $Meta Platforms (META.US)$Wilson said, "In our opinion, this is a sign that the market is increasingly focusing on slowing growth rather than inflation and interest rates. Even as rates fall, the underperformance of small-cap stocks is a good example of this phenomenon."
Bank of America said that the recent performance and the difference in the yield of 10-year Treasury bonds indicate that the market is increasingly concerned about the cyclical small-cap stocks, and the concern for growth is increasing. Bank of America's stock and quantitative strategist Ohsung Kwon said in a report: "When economic growth is strong, the Russell 2000 index is closely related to interest rates due to refinancing risks."
In economic data, the U.S. Department of Commerce lowered the annualized growth rate of GDP for the first quarter of the year from 1.6% to 1.3%. May retail sales rose by only 0.1%, below expectations, and the labor market showed a slowdown in first-time jobless claims. Kwon pointed out that the Bloomberg Economic Surprise Index has fallen to its lowest level since February 2019.$NASDAQ 100 Index (.NDX.US)$with$Russell 2000 Index (.RUT.US)$Deutsche Bank said: "We believe that the most important thing is that large fiscal spending and tight monetary policy are squeezing many companies and consumers out of the market in an unsustainable way." Wilson said, "Investors have recognized this outcome and have boosted the stocks of several companies that perform well in this environment."
Wilson said that high-quality technology stocks and other stocks, including Intuitive Surgical(ISRG.US), have high P/E ratios. "Unless the bond market rebounds through higher term premiums or growth slows in a more meaningful way, we expect this narrow market performance to continue."
Kwon said that Bank of America expects US GDP to grow by 2% per quarter for the remaining quarters of 2024, which will bring a "favorable blonde background" to the stock market.
Deutsche Bank recommends combining large high-quality growth stocks with defensive stocks. Due to recent poor performance, stocks in the capital goods industry may perform well in the short term, and the profit revision range of the industry is "not bad".$Costco (COST.US)$, $Chipotle Mexican Grill (CMG.US)$N/A.$Intuitive Surgical (ISRG.US)$And$Eli Lilly and Co (LLY.US)$Pe
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