Morgan Stanley expects that the Rolling Bear will finally hit high-quality stocks

Federal Reserve rates hike and less synchronized development of the global economy are hitting the financial markets, the movement of which will eventually hit to high-risk US stocks, Morgan Stanley speculates.

Risky assets will be the first assets that are affected by the movement, and only then do investors shift to more reliable shares, according to Mike Wilson, chief strategist at Morgan Stanley on the US stock market, in an interview with Bloomberg television. If the securities of developing nations this month slipped, then the US stock index S&P 500 stays in the upbeat territory from early June.

Morgan Stanley
Source: Hyser

"This is fundamentally our speculation for the year- we are in a sort of bearer market," Wilson convinced, "what we witness is not the 2008 context, when everything tumbled at once, the markets are falling one by one other now, and it's a kind of sliding correction."

The current dumping of US technology firms is an epitome, Wilson added. Only this sector in the US manifested a rise in the comparative value this year and a stream of investments into more safe stocks, he informed. He also believes that even the shares of the highest class are too pricey and may necessitate a little correction.

The fact that the yield of 10-year US Treasury bonds for the past three weeks could not surpass 3 percent indicates a change in investor sentiment, according to Wilson. Morgan Stanley last week pronounced that the edge of the year is now already behind the benchmark against the background of brewing trade stress and a stronger dollar.

He believes that the development of the economy has hit its edge- doesn't mean crisis, and that the Fed may progress tougher than it seems, given the decrease in the balance of the regulator. And that is draining liquidity."

One segment of the market that may be shielded against the movement of the rolling bear is U.S. small caps, Wilson said. Relative earnings growth for those corporations is going to be better this year thanks to tax cuts. And since they are more domestically focused, they are expected to avoid the impact of the Trump administration trade regulations.

Wilson speculates a more bitter rotation into defensive stocks such as utilities, telecom services, healthcare and consumer staples as growth slows down and the U.S. Treasury yield curve heads toward inversion.
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