By Senad Karaahmetovic
A Morgan Stanley strategist once again reiterated his bearish stance on U.S. equities as companies continue to report on their Q2 performance.
He took note of plunging revision breadth, especially noticed in sectors like Consumer Durables, Financials, Industrials, Materials, Semis, Tech Hardware, and Telecom Services.
“We believe this is just the first of what is likely to be several disappointing quarters before estimates finally trough. Therefore, recent positive price action to some earnings cuts is unlikely to be the low for most stocks as it's usually unwise to buy the first cuts when we are entering a major revision cycle,” he told clients in a note.
The strategist continues to urge investors to increase exposure to defensive growth, rather than offensive growth.
“Investors still have a love affair with growth stocks, particularly tech given their outstanding performance over the past decade. However, many of these stocks are more economically sensitive than many still appreciate and if recession is coming, these stocks will not do well. We would advise sticking with more defensive growth for now,” he added.
Morgan Stanley’s top strategist also warned against trying to price a Fed pause as he argues this cycle is not like recent ones.
“In the last four cycles, the Fed paused its tightening campaign before recession arrived and the period between the last hike and the recession was good for stocks, often VERY good. However, this cycle is different than anything we have experienced since the early 1980s, due to the high rate of inflation--the last time the Fed had to tighten right into a recession,” he concluded.