U.S. Stocks Jump on Chinese Factory Data 2nd Update
U.S. stocks jumped and bond prices slid Monday after upbeat Chinese manufacturing data offered investors a sign that the world's second-largest economy was possibly stabilizing.
https://www.marketscreener.com/news/U-S-Stocks-Jump-on-Chinese-Factory-Data-2nd-Update–28332816/
Bifurcation at it's finest on April Fool's day
Morgan Stanley Sees 70% Chance Of Downturn "As Early As Next Month"
(now that the fed safety net is removed ala increasing interest rates so they get a wider margin on all debt issuance they suddenly "see the light" all of a sudden.)
On a day when stocks are surging because the Chinese economy is no longer sliding into contraction (according to China), one can trust Wall Street's latest "superskeptical" foil, Morgan Stanley, to come out with a report that spoils the party.
Sure enough, in a note from strategist Serena Tang published earlier today, she writes that while Morgan Stanley's updated US market cycle indicator is still in expansion, a phase in which it has been since 2014, the bank is now estimating that there is a 70% likelihood that this will shift to downturn over the next 12 months, and that if the recent deterioration in data persists, we could see "a switch from expansion to downturn as early as next month."
As Tang explains, while "such turns do not necessarily mean recession" they do correspond to "materially worse return environments for credit and equities." And so, coupled with generally low bottom-up returns from Morgan Stanley strategists' forecasts, the bank "leans back against dreams of Goldilocks" and believes that this supports more defensive asset allocation.
Here are the details behind Morgan Stanley's unexpectedly downbeat call.
First, a quick recap of what prompted the trigger: Morgan Stanley's US cycle indicator combines metrics across macro, the credit cycle and corporate aggression to pinpoint where we are in the market cycle, as shown in the chart below which compares the latest iteration of the model with its most recent revision.
Of note, the revised US cycle indicator (v2019) is meant to better flag turns in real time, with greater confidence and less lag.
Morgan Stanley's updated US cycle indicator is still in expansion.
Cap 2
(this has already given the "sell" signal for anyone paying attention to charts. That MS-who was leveraged up higher than Lehman Bro's at the time of the '08- Is still clinging to "hold and hope" is quite telling.)
Far more useful is that the bank's new methodology now allows it to calculate a downturn probability and estimate the chance that the market cycle phase shifts from expansion to downturn, based on the breadth of data improvement/ deterioration. Given the stretched level of the indicator, Tang writes that the "model sees the chance of a switch to downturn as high – at nearly 70%, up from around 60% from end-2017." Some more details:
We don't think that this expansion can be sustained for long: Exhibit 26 shows our real-time downturn probability gauge, which estimates the chance of our cycle model inflecting to downturn from expansion within the next 12 months, based on historical experience. What this chart suggests is that, given the level of the cycle indicator, the chance of a shift to downturn over the next 12 months is elevated at close to 70%, up from ~60% from end-2017 when we last checked up on the cycle.
As a result, the probability the US cycle indicator switching from expansion to downturn is the most elevated it's been since 2005/2006, suggesting an imminent cycle peak. In fact, a backtest shows that the probability of a downturn is now higher than it was either right before the global financial crisis or just before the dot com bust.
Of course, Morgan Stanley does not make such downbeat calls lightly after all its clients, like most other investors have been habituated by the Fed to expect only market upside. Every US recession since 1955 (there have been nine) was preceded by downturn in the US cycle indicator, but not every downturn phase meant a recession would follow.
https://www.zerohedge.com/news/2019-04-01/morgan-stanley-sees-70-chance-downturn-early-next-month
(Just say what you want to say FFS-they can't as the truth hurts them BIGLY
Cap3-See how the current downturn is just at the level of the last big peak in 2005?-
That means sell it.
Waiting around to "see what habbens" is like staying at the poker table after you have lost over half of what you originally brought in. You already lost so fold'em and move on.
Familiarize yourself with financial terms and language here:
https://www.investopedia.com