Market Correction Was Just an ‘Appetizer’ for What’s to Come Later This Year, Morgan Stanley Says

Share This Post

Morgan Stanley – Market Correction Was Just an ‘Appetizer’

Market Correction Was Just an 'Appetizer' for What's to Come Later This Year, Morgan Stanley Says

By Fred Imbert on Tue, 20 Feb 2018 – 10:37 AM ET

  • Andrew Sheets, chief cross-asset strategist at Morgan Stanley, says the recent correction was just an “appetizer, not the main course.”
  • Earlier this month, stocks closed about 10 percent below the record highs set Jan. 26.
  • “Things get trickier” after the first quarter, Sheets says.
  • “Past March, markets will need to digest rising … core inflation and declining PMIs, economic surprises and (quite possibly) earnings revisions.”

The market correction experienced earlier this month was just a prelude of what’s to come later in 2018, a Morgan Stanley strategist says.

On Feb. 8, the Dow Jones industrial averageS&P 500 and Nasdaq composite all closed about 10 percent below record highs set Jan. 26, notching the first pullback of that magnitude since 2016.

Andrew Sheets, chief cross-asset strategist at Morgan Stanley, said in a note Monday that those declines were just an “appetizer, not the main course.”

“Our cycle models suggest that [developed markets] remain in the late stages of a late-cycle environment,” said Sheets. “Rising equities, rising inflation, tightening policy, higher commodity prices and higher volatility are (in our view) a pretty normal pattern if that view is correct.”

The benchmark 10-year U.S. note yield rose to a four-year high last week, while the short-term two-year yield reached its highest level since 2008 on Tuesday. Fears of rising inflation, along with worries about tighter monetary policy from the Federal Reserve, lifted rates and pressured stocks during the correction.

Last week, the Labor Department said the U.S. consumer price index — a widely followed inflation metric — rose 0.5 percent last month, topping a Reuters estimate of 0.3 percent.

“At present, the strength of current data … is still acting as a counterweight to inflation concerns, as is a strong 1Q results season. Earnings reported so far have beaten estimates by [about] 5% in the US,” said Sheets. “Things get trickier, however, after 1Q. Past March, markets will need to digest rising … core inflation and declining [purchase manager indexes], economic surprises and (quite possibly) earnings revisions.”

Source: Market Correction Was Just an ‘Appetizer’ for What’s to Come Later This Year, Morgan Stanley Says

More To Explore

Part VII of the 2024 Gold Forecast Series

The Experts on Gold Gold has always been a source of economic stability and peace of mind for investors. In 2024, these experts agree that gold could have a breakout

Part VI of the 2024 Gold Forecast Series

The Election of 2024 A Country Divided According to an August 2023 Gallup Poll, political polarization in the United States has increased dramatically, particularly on issues relating to federal power,

PART V of the 2024 Gold Forecast Series

The Volatility Watchlist Household Debt U.S. households are enduring economic headaches on multiple fronts including high inflation, soaring mortgage rates,  rising gas prices, and evaporating pandemic savings. According to data released