The probability of a “hard landing” for the U.S. economy has jumped, with stock and bond investors worried about slowing economic growth, according to Morgan...
The probability of a “hard landing” for the U.S. economy has jumped, with stock and bond investors worried about slowing economic growth, according to Morgan Stanley’s wealth-management division.
“The stock- and bond-market downturn has advanced to behavior resembling a classic cyclical bear market rather than simply a correction,” said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in a note Monday. Both stocks and bonds have suffered this year as the Fed seeks to battle inflation by raising interest rates. “A portfolio with equal parts stocks and bonds would have been down more than 10% in the last six months, the worst experience since the financial crisis,” Shalett wrote. “With the inflation fight now on in earnest and the Fed policy regime turned hawkish, the rise in interest rates has been punishing.
Clissold said that over the next several weeks the market will probably continue to see high volatility while “testing” recent lows to gauge to what extent selling may be “exhausted.” In an environment resembling a cyclical bear market, “negative catalysts are not only higher rates and lower valuation multiples, but an actual rollover in earnings growth momentum,” according to Shalett’s note. “During this phase, balance-sheet strength and credit markets come under greater scrutiny,” she wrote.
Read: ‘Very, very high’ risk of recession, warns Goldman’s Lloyd Blankfein as bank cuts U.S. growth forecast
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