In a note to stock market investors, Morgan Stanley’s chief US equity strategist Mike Wilson stated that he fears investors are facing a recession despite the US-China trade truce, according to Business Insider.
Wilson believes that the stock market’s favorite stocks are poised for a big reversal and the US-China truce won’t save them. Wilson thinks investor’s momentum investing strategy when they buy popular stocks and sell the laggards is to blame for the coming fall.
A reversal in April started with the slower economic growth that sent investors scrambling away from these popular stocks. Investors continue to flee these three kinds of favored stocks: high-quality, defensives, and growth stocks. Investors are now favoring cyclical stocks in hopes that the US-China truce spurs faster economic growth. This shift puts investors at risk in an economic recession.
"Whether we have an outright recession in the US remains uncertain, but the recent data releases suggest the risk is rising," Wilson said. "However, there appears to be a growing belief that a combination of Fed cuts and a trade deal can reverse these negative trends. We disagree."