S&P 500 Ready to Join Bear Market: Morgan Stanley

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Fed Chair Jerome Powell’s endorsement of aggressive actions to curb inflation sent traders racing to price in half-percentage-point interest-rate increases at the bank’s next four meetings.

Morgan Stanley strategists said a quickly tightening Fed is looking “right into the teeth of a slowdown” and that while defensive positioning has worked well since November, they don’t see more upside for these stocks as their valuations have swelled.

At the same time, the strategists said that large-cap pharma and biotech shares’ defensive characteristics make them consistent outperformers in an environment of slowing earnings growth, decelerating PMIs and tighter monetary policy.

“As the U.S. economy moves to a late cycle phase and GDP/earnings growth rates decelerate for the overall economy and market, we think Pharma/Biotech’s defensive properties will outweigh policy concern and drive relative performance higher,” they wrote.

(Photo: Michael Nagle/Bloomberg)

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