Market shifting focus to softening growth from inflation, Morgan Stanley and BofA say

seekingalpha06-25

A narrow group of stocks driving the market (SP500)(COMP:IND)(DJI) while U.S. economic conditions soften suggests investors are paying closer attention to growth prospects, Morgan Stanley and Bank of ...

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GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/news/4118556-market-shifting-focus-to-softening-growth-from-inflation-morgan-stanley-and-bofa-say><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>A narrow group of stocks driving the market (SP500)(COMP:IND)(DJI) while U.S. economic conditions soften suggests investors are paying closer attention to growth prospects, Morgan Stanley and Bank of ...</p>\n\n<a href=\"https://seekingalpha.com/news/4118556-market-shifting-focus-to-softening-growth-from-inflation-morgan-stanley-and-bofa-say\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0276348264.USD","symbol_name":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN\"AUP\" (USD) 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Alongside downside data surprises this year and the narrowing list of stocks holding sway over the market’s direction, many lower quality and economically sensitive areas in the market have lagged, Morgan Stanley Chief U.S. Equity Strategist Michael Wilson said in a note Monday.  “In our view, this is a sign the market is becoming more focused on growth softening and less focused on inflation and rates. The underperformance of small caps despite falling rates is a good example of this phenomenon,” Wilson said. The Russell 2000 Index of small-cap companies (RTY) is up 0.5% YTD, well behind the +14% rise in the S&P 500 (SP500)(IVV) driven largely by tech mega-caps including Nvidia (NVDA) and Meta (META).  Bank of America said the recent divergence in the relative performance of the Nasdaq-100 (NDX) versus the Russell 2000 (RTY) and the 10-year yield (US10Y) suggests the market is focusing more on small caps’ cyclicality with rising growth concerns. “When growth was strong, the Russell 2000 has traded very closely with rates due to its refinancing risk,” Ohsung Kwon, equity and quant strategist at BofA, said in a note.  Among economic data, the Commerce Department lowered the Q1 GDP growth rate to 1.3% annualized from its 1.6%. May retail sales edged up a smaller-than-expected 0.1% M/M, and the labor market is showing a slowing in rising initial jobless claims. The Bloomberg Economic Surprise Index has fallen to the lowest level since Feb 2019, Kwon noted.  “The bottom line is that the ongoing policy mix of heavy fiscal spending and tight interest rate policy is crowding out many companies and consumers in a way that is unsustainable, in our view,” Morgan Stanley’s Wilson said. “Investors have recognized this outcome by bidding up the few stocks of the companies that are doing well in this environment,” he said.  High quality tech stocks and other stocks are trading at rich multiples including Costco (COST), Chipotle Mexican Grill (CMG), Intuitive Surgical (ISRG), and Eli Lilly and Co. (LLY), Wilson said. “Until the bond market pushes back via a higher term premium, or growth slows down in a more meaningful way, we expect this narrow market performance to persist.”  BofA projects GDP rising 2% Q/Q on a SAAR in each of 2024’s remaining quarters, which should result in a “favorable goldilocks backdrop” for stocks, Kwon said.  Morgan Stanley recommends a barbell of large-cap quality growth stocks with defensive stocks. Stocks in the Capital Goods industry could undergo near-term outperformance because of recent underperformance, while the industry sees “decent” earnings revisions breadth.  Stock ETFs investors can track include (QQQ), (VONG), (SCHX) and (FTCS).   More on the markets and the economy","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446488152"}