June 11, 2025

(MORGAN STANLEY CARVES A KNIFE THROUGH THE NOISE IN THE MARKET)

June 11, 2025

Hello everyone

We all know what is happening in the macro environment at the present time.

Tariffs -maybe this level, maybe not??

Noise over potential trade agreements

Demonstrations over immigration policies

Geopolitical conflicts/no peace agreements/angst

China/U.S. trade relations – going well/or not?

Musk vs. Trump – two giant personalities at loggerheads

Bond market jitters

The Fed – endeavouring to thread the needle – balancing inflation & unemployment.

We have been hearing for months now, or is it years, that we are in for a recession. Are we in it? Maybe, maybe not. Or is it just a slowdown. Data will tell the story, but we’ll have to wait for it.

Anyway, Morgan Stanley is arguing, that despite the noisy headlines and dramas invading our space, markets have already been pricing in a slowdown in growth since trade war hostilities commenced. In other words, the equity strategy team at the investment bank is saying that this slowdown is already discounted. We can understand that macro data and earnings may come in a bit softer over the summer period because of the uncertainty, but overall, a better second half is still forecasted by the investment bank.

Morgan Stanley shows that most analysts are raising rather than lowering profit estimates across the S&P500. Michael Wilson, equity strategy team leader, argues that “when revisions breadth is accelerating in a V-shaped manner from an extreme low, equity markets typically remain supported, and pullbacks remain shallow and unsatisfying (like the past 6 weeks).”

The S&P500 (SPX) closed Friday just over 6,000 which is a 24% gain from its April 7 low.

Morgan Stanley’s team believe key leading indicators are already suggesting a recovery from what they say is not just tariff uncertainty but also pay-back in demand post the “pre-tariff pull forward.” In addition to this, the investment bank argues that dollar weakness should support earnings per share revisions and provide a strong tailwind for the markets. The bank’s forecast for the dollar (DXY) is a target of 91 by mid 2026.

The bank also argues that the Fed may pivot to a more dovish stance by the end of the year. This would no doubt help the Treasury fund its deficits going forward.

Cyclical stocks are favoured by the bank going forward, but also higher beta growth areas. If flows continue to pursue momentum stocks, then capital goods and financial services will continue to attract buyers.

On the flip side of Morgan Stanley’s view of the markets, we get a group of doomsayers, warning us the market is going to drop to S&P500 1,600 or lower, and we are all going to hell in a handbasket. Ever since the 1987 crash, newsletters and all manner of “experts” have emerged from the woodwork to “advise” us on what the markets are going to do or not do. A person, who could creatively string some words together on paper, and/or had a marketing degree, knew they could monetize their craft in talking people into following their so-called wisdom about the investment world. Fortunately, there are less of these people around today, but still, too many for my liking.

Many people have lost their homes and their portfolios from listening to these people. I know who they are, but I’m not going to name anyone. It is a tragedy beyond all measure and makes me work harder to separate myself from that tribe.

Seriously, though, there are a few people who think the markets are going to drop 80% next year or the year after or the year after that, and so on… I have been hearing this call since the year 2000. Yes, the markets will have a few hiccups along the way, but as Buffett says, if you can’t cope with a 20-50% drop, you should not be in the investment space. See it as an opportunity, and let others take on the gloomy & defeatist attitude. After all, markets always rise after they fall.