19/11/18

Morgan Stanley Calls It: "We Are In A Bear Market"



----
Morgan Stanley Calls It: "We Are In A Bear Market"
// RSS

On Friday, with the Dow surging on what proved to be failed hopes that the trade war with China is coming to an end, JPMorgan head quant Marko Kolanovic quadrupled down on his now weekly call urging clients to buy the dip, this time saying that "equity market sentiment is held back by two key risks: the Fed hiking beyond the neutral rate and escalation of global trade war."

To justify his relentless optimism, Kolanovic referred to "Trump's statement that he may not need to impose more China tariffs and that the "China list is pretty complete, four or five things left off" (from the original list of 142 requests, i.e., 96% of items have been addressed)"and added that "naively interpreting the likelihood of a deal by the number of items addressed would indicate a significantly increased probability of a trade deal." Of course, following this weekend's collapse in Sino-US diplomacy at the APEC summit, which for the first time in history ended without a joint communique, we know that this is not the case.

The JPM quant also pointed to the recent shift in sentiment by the Fed's chair and vice chair, and referring to the statement by Richard Clarida, suggested that "the Fed may stop at the neutral rate (rather than continue hiking beyond the neutral rate), which might be interpreted as an effective rate cut." Then again, as Nomura's Charlie McElligott explained this morning, the "bull steepening" in the curve indicates that far from a bullish resolution, the Fed's dovish relent is actually bearish "because growth is decelerating, fiscal stimulus impacts are rapidly diminishing, financial conditions are net / net "tighter" and policy nearing the level where it is no-longer "stimulative."

In any case, for the above two reasons, and along with record levels of Q4 buyback activity, Kolanovic concluded that "the pain trade, and therefore most likely outcome, will be the market going higher into year-end."

Well, maybe not...  because one look at the market which is down almost 2%, with the Dow plunging 450 points and the S&P back under 2,700 would indicate otherwise.

* * *

Meanwhile, taking the other side of the bet is Morgan Stanley's bearish chief equity strategist, Michael Wilson, whose year end price target on the S&P is 2,750, the lowest of all Wall Street strategists whose average prediction is that the S&P will close above the record high of 2,930.75 hit in September and who warns again that "If it Looks like a Bear and Trades Like a Bear, Stop Trading it Like a Bull", and then just in case he wasn't clear, explains "We are in a Bear market."

To make his point, Wilson notes something we first brought attention to back on October 24, namely that in 2018 "buying the dip" has been a negative return strategy for the first time in 13 years.

Here's Wilson:

Not only does the price action this year suggest we are in the midst of a bear market--more than 40 percent of the stocks in the S&P 500 are down at least 20 percent--but it also trades like a bear market. According to analysis from our QDS colleagues, buying the dip has not worked in 2018 for the first time since 2002. Such market behavior is rare and in the past has coincided with official bear markets (20 percent declines), recessions, or both.

Exhibit 1: Old Habits are Hard to Break. Buy-the-Dip Strategy Not Working This Year for the First Time since 2002

To demonstrate this point, Morgan Stanley looked at rolling five-day declines in the S&P 500 Index this ....

Posta un commento