Original title: Morgan Stanley: us stocks are expected to fluctuate at a high level, be on guard against three major risks
Morgan StanleyLisa Shalet (Lisa Shalett), chief investment officer of (Morgan Stanley) wealth management, said that although there has been a sharp decline in some corners of the market, most US stock indexes remain near historic highs and investors should not be complacent. The core point is as follows.
Higher inflation and interest rates
The US consumer price index (CPI) and producer price index (PPI) in April were both much higher than expected, with several "core" CPI inputs worryingly high.
While some aspects of recent inflation may be temporary, a series of long-term changes that are taking place suggest that price increases are likely to continue. In addition to pushing up corporate borrowing costs, interest rates and the concomitant rise in inflation are likely to depress the value of stocks.
The upward momentum of the data weakens or indicates a slowdown in economic growth.
Citigroup's US economic surprise index, (Citi US Economic Surprise Index), fell to 14.7 from 92.2 after falling to negative shortly after disappointing housing starts last week.
The index measures the surprise of the data relative to market expectations. The weakening upward momentum of economic data may indicate a slowdown in economic growth.
Profit resistance
Supply chain imbalances, rising input costs and rising wages could put pressure on corporate earnings in some industries and could exacerbate less favourable annual comparisons, as we have been more than a year since the start of the 2020 pandemic.
These factors, coupled with possible high taxes and a reduction in bond purchases by central banks, increase the likelihood of a correction and continued volatility in the stock market.
However, the emergence of volatility may create opportunities for investors to shift their portfolios to high-quality stocks, especially those with high and manageable returns on equity and free cash flow. and stocks that have good growth prospects at reasonable prices.
We believe that investors should also consider avoiding a significant increase in their holdings of major passive market capitalization weighted indices.