The always excellent Michael Wilson at Morgan Stanley.
A Good Start
Last week, we made a tactically bullish call for US equities; this week, we will provide feedback to that call and color on where we think the markets will trade from here. First, to be clear, this is a tactical call based almost purely on technicals rather than fundamentals which remain unsupportive of higher equity prices over the next 3-6 months. Second, the price action of the markets have become more technical than normal over the past few months as investors are forced to do things they don’t want to, both on the upside and the downside. Such is where we are in this particular bear market which began well over a year ago for the average stock. More specifically, many active managers are having a difficult year which puts them on their back foot and unable to fight powerful trends both up and down. This suggests passive trendfollowing strategies can have even more influence on price than normal. Witness September which resulted in the worst month for US equities since the Covid lock downs in March 2020. Passive flows simply ran over anyone trying to make a stand on the long side. The same price action can happen on the upside,and one needs to respect that in the near term, in our view.
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