For this reason, there are three signs that prevent problems for the stock market of the modern world from arising
1. GOODS Prepare for Higher Interest Rates
Bond yields have risen significantly, with the 10-year Treasury yielding 4% and the sensitive 2-year plan reaching 4.6%, the highest level since November, according to Morgan Stanley.
Also, in the past two weeks, the US dollar has strengthened by 3%, while West Texas Intermediate oil prices have risen by around $3 per barrel.
“Such moves may suggest that equity investors ignore fundamental information that has a bearing on other assets, and may be caught off guard when higher rates ultimately affect equity valuations,” they add.
2. Inflation of expectations
The market inflation estimate for the next two years has risen to 2.9%, well above the central bank’s 2% target.
“Perhaps most importantly, traders have raised expectations for a certain term, or how high H the federal funds rate will have this cycle elevation, up to beyond 5%, above the forecast based on the market at the beginning of February, which placed around 4.75%”, confirmed the investment team of Morgan Stanley Global .
3. Consummation falls
Inflation in the United States is slowing at a slower than expected rate. The CPI stood at 6.4% on the year in January, a decline that was below market expectations, which expected a drop to 6.2%.
On a monthly basis, the headline CPI in the US rose 0.5%, while the core rate rose 0.4%. The decline, which was also confirmed by Wolf, increased producer prices by 0.7% in January, stronger than expected.
Morgan Stanley analysts believe these factors are still changing the bullish mood in the stock, as “any recent attempts to pick up the market have been found when investors are trying to ‘buy the dip’, causing the stock price to rise again.”
In this sense, they suggest that continued elasticity in consumption will tend to indicate constant price pressures, which in turn will lead central banks to maintain interest rates, not only higher, but longer, under the pressure of rating actions.
In this way, they consider the “no port” theory to be simply a “forced bow” that is deferred.
“Investors should consider adding defensive stocks that have recently sold in a timely manner, with a focus on dividend yield and cash flow, as well as the possibility of profit,” concluded Morgan Stanley.