According to Bloomberg News, the recent recovery of the equity markets is only short-lived, as told on Monday by the vocal bears, urging investors to take refuge in the bonds, and the economy’s growth is slow.
Bonds over stocks: the near term option for growth
According to the Chief US Equity Strategist of Morgan Stanley, Michael Wilson, the bear market is no longer prevailing, as stated in a note to the clients. That leaves investors with constructive options of bonds over stocks in the near term as growth concerns occupy center-stage, thereby doubling down defensive bias.
As per Wilson’s thesis, it is a sharp slowdown that the economy is heading for. This is due to payback in demand from the previous year’s fiscal stimulus, hikes in food and energy prices that work as taxes, demand destruction resulting from higher prices, and build-up in inventory caught in demand. The macroeconomic backdrop that appears to be less forgiving will be difficult to ignore by the investors as it is away from the profits from the corporates.
Despite worries that the war is still on between Russia and Ukraine and the fact that resulting sanctions target one of the global commodity supply bedrocks will tend to surge the inflationary pressures at record levels, European and US equities have rebounded in the last month, thereby leading to the paring of the quarterly losses. Wilson, along with his team, advises the investors to dispose of the rally, giving a reason that it lacks legs.
The bearish view is in sharp contrast to the JP Morgan Chase & Co’s team, which has been calling continuously for a greater upside to the equities, stating that the growth concerns are overblown.
JP Morgan strategists led by Mislav Matejka stated in a note that geopolitics continues to be a wild card. Still, the equities’ fundamental risk-reward is not seen as bearish as it is presently portrayed fashionably.
Bloomberg News reports that whereas Wilson of Morgan Stanley doubled down on the recommendations he offered related to defensive stocks, Matejka, along with his team, stated that traditional defensives must not have legs to rebound, surpassing the geopolitical dislocation, thereby hinting at an underweight position.
At the beginning of the year, Wilson for the S&P 500 index had the lowest target for the year-end amongst all equity strategists surveyed by Bloomberg. He also had some kind of bearish views in the year 2021 that he said were not right amidst a brisk rally that has pushed the primary US benchmark to successive record limits.
