Morgan Stanley has just published a list investors should probably pay attention to. The bank’s research has chosen ten stocks which it says may tank. It is unusual for bank analysts to have negative views of stocks, but when they do, it is worth listening to. Without further ado, the list is: Abercrombie & Fitch, Avis Budget Group, Bed, Bath & Beyond, EQT, FitBit, Hertz Global Holdings, Juniper Networks, MSG Networks, Seaspan, and Tenneco.
FINSUM: The most interesting ones for us are the car rental companies (Hertz and Avis). They say ride-sharing is a risk, as is a decline in used car values. We agree with the former, but we think the latter is off base because as new car buying slows (as does the economy), used car sales will pick up.
Is there gain ahead or pain ahead? That is the question on every investors’ mind. Well, Morgan Stanley has an answer. The bank’s chief US equity strategist, Michael Wilson, says that the answer is more pain. The bank thinks we are in a “rolling bear market” and that stocks will reach bear status soon. “We think we get there in four to eight weeks”, says Wilson. The bank defines a bear market as a drop of 20% or more with no recovery for 12 months. “Risk-reward remains unattractive for us”, he added.
FINSUM: Morgan Stanley thinks a lot of these losses come down to the change in central bank policy. We agree with that but we also think investors are just anxious about what lays ahead in terms of a possible recession, trade war, and beyond.
Investors have gotten so used to low inflation that it is sometimes hard to imagine seeing it rise. However, Morgan Stanley is warning that inflation is rising across the globe and investors need to keep an eye on it. In Europe, Asia, and the US, inflation has risen from 1.1% to 1.4%, and it is bound to move higher, according to Morgan Stanley’s chief global economist. Interestingly, MS argues that the Euro area and Japan will see a higher rise in inflation than the US.
FINSUM: If inflation rises more strongly in other developed markets than the US, will that lead to even more foreign buying of US bonds because yields in those locations are so much lower? In other words, will there be even more demand for US bonds?
Morgan Stanley has just put out a warning, or perhaps better stated, a notice to investors. The bank is reminding the market that this year will likely have the lowest returns in a decade. The bank’s strategists say that “2018 is on track to have the lowest share of positive returns adjusted for inflation across 17 major asset classes since 2008”. The poor returns have been particularly true for those holding globally diversified portfolios. What’s worse, Morgan Stanley thinks returns are going to get worse because of rising rates. According to the bank “We’re big believers that real rates matter most for risk markets, as it’s the rate over and above inflation that matters most for discounting future cash flows … As ‘invincible’ as the U.S. equity market has been, it hasn’t had to confront a different rate regime”.
FINSUM: If you look internationally, this has been a terrible year for markets, and it does seem true that rising rates won’t help anything in the coming year.
Since the end of the Broker Protocol, it seems that many firms have shied away from recruiting. Especially at the senior level, but even at the junior level, firms have not been investing as much in recruiting. But that may be starting to change, as recent reports of increased recruiting activity have emerged, such as word today that Edward Jones is ramping it up. Edward Jones says it aims to hire 250 senior advisors from other firms this year. Additionally, there is some news out that Morgan Stanley and Merrill Lynch may be working on a so-called Broker Protocol 2.0.
FINSUM: This seems an encouraging sign on the recruiting front after a rough year. FYI Edward Jones is not part of the Broker Protocol.