Morgan Stanley Morgan Stanley chief U.S. equity strategist Michael Wilson stays adamantly bearish and believes markets are beginning to show typical late cycle behaviour,
“We view this year as an extension of the late cycle period often experienced when the Fed is expected to pause or reverse its hawkish policy stance. As is typical in such periods, multiple expansion has moved ahead of where macro fundamentals dictate fair value to be, placing the burden on a growth reacceleration and/or incremental policy support that’s not already in the price in order to keep multiples elevated … Late cycle/more conservative factors are outperforming once again. Specifically, we note that high cash, low debt and low capex factors have performed well over the last month; long term growth and strong sales/earnings revisions factors are also working. Interestingly, despite the rate move higher since the local peak in equities in late July, growth has outpaced both value and cyclicals. Further, a broad set of early cycle winners have seen relative underperformance recently. In our view, this supports our preference for a late cycle playbook. Overweight Health Care...Health Care has underperformed the market year-to-date but is showing relative strength against other defensive pockets”