10/29/2018 Morgan Stanley says October sell-off is 'morphing' into a bear market

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Morgan Stanley breaks with rest

of Street, thinks October sell-off
is 'morphing' into a bear market
"The rolling bear market continues to make progress and there is growing
evidence that it is morphing into a proper cyclical bear market," Morgan Stanley
writes.
Morgan Stanley's top stock strategist is concerned that actions by the Federal
Reserve are drying up liquidity more than most investors predicted.
The S&P 500 is off more than 8.5 percent from its all-time high in September,
while the Dow Jones Industrial Average is off by more than 7.6 percent.

Thomas Franck | @tomwfranck

Published 4 Hours Ago | Updated 2 Hours Ago

by Taboola

Alan Greenspan says

Sweden may hold the
answer to America's
looming entitlement
crisis
Cramer explains why
the sell-off is
happening and what to
do about it
One market foil is
Seread | Getty Images coming to a head and
could take S&P 500
Morgan Stanley disagrees with the rest of Wall Street: The bank's top down to February lows:
strategists are gearing up for a much longer bear market while others Peter Boockvar

are betting the sell-off is short-lived. Jim Paulsen: 'Full-on

panic' is the buying
"The rolling bear market continues to make progress and there is opportunity; market
growing evidence that it is morphing into a proper cyclical bear hasn't seen 'ultimate
bottom'
market in the context of a secular bull," wrote Michael Wilson, the
Stocks just broke a key
bank's chief equity strategist. "We think the evidence is building and
level and what's next
the message from Mr. Market is clear: the consensus outlook for could decide fate of
earnings growth is 
too rosy next year."
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Nearly 40% of
Strategists on Wall Street refer to bear markets that are shorter in
Americans are anxious
duration as "cyclical." about stock market
volatility—here's the
Morgan Stanley is concerned that actions by the Federal Reserve and No. 1 reason why
other central banks are drying up liquidity more than most market
participants predicted, putting stocks in a precarious position. The TRENDING NOW
Fed, which influences the financial markets by adjusting the
New lawsuit accuses
Trump and 3 of his
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10/29/2018 Morgan Stanley says October sell-off is 'morphing' into a bear market

overnight lending rate, has hiked interest rates three times this year children of conning
and is widely expected to do so again in December. 'thousands' of people
in marketing ploy

2. Dow tumbles more

than 200 points in
wild session, S&P
500 closes in
correction territory

Why you shouldn't panic when 3. Here's what could

 stocks are getting slammed  

9:47 AM ET Fri, 12 Oct 2018 | 02:11
turn this stock market
sell-off around
according to
investors

4.
Some corporate officials have cautioned that between higher White House defends
borrowing costs and an uncertain tariff outlook, 2019 could prove a Trump's response to
tough year for stocks. Wilson pointed out that about half of all the mail bombs being
stocks in the broad MSCI U.S. Equity Index are at least 20 percent sent to CNN and
Democrats
below their 52-week highs.

"The markets seem to agree and have been quietly revolting all 5. Morgan Stanley
breaks with rest of
year," Wilson added. "We don't think the revolts will stop until
Street, thinks
central banks pause or at least signal they are concerned. With the October sell-off is
Fed having to respond to still strong economic data and the desire to 'morphing' into a
remain apolitical, we think it could take another 200 S&P points bear market
making 2450 a reasonable downside target to consider."

The S&P 500 is off more than 8.5 percent from its all-time high in
September, while the Dow Jones Industrial Average is off by more

than 7.6 percent. Some,
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the stock market sell-off over the past month as "overdone" and a
buying opportunity.

"The recent sell-off has priced too sharp of a near-term growth

slowdown," David Kostin, Goldman's chief U.S. equity strategist,
said in a note to clients. "We expect continued economic and
earnings growth will support a rebound in the S&P 500."

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10/29/2018 Morgan Stanley says October sell-off is 'morphing' into a bear market

The rosier view from Goldman comes amid a largely solid economic
backdrop. Third-quarter GDP rose 3.5 percent, according to a
preliminary reading Friday.

Still, Morgan Stanley has defended its forecast for a dismal stock
performance this year, even as the S&P 500 rallied 9.5 percent by
mid-September. Since then, stocks have plunged more than 8
percent, erasing nearly all of their 2018 gains over that span of five
weeks as the markets appear to reward Wilson's persistence.

The strategist also said that the U.S. equity market sold off in ways
"we haven't seen in years," highlighting losses in technology and
consumer discretionary stocks. Wilson said those sectors are where
money managers have the most exposure, and translates into
"extreme portfolio pain."

"The rolling bear market is quickly moving to complete its job with
growth stocks (Tech, Health Care and Discretionary) catching up on
the downside and we don't think it will be over until this gap is
completely closed," he wrote.

Wilson's bear case for the market of 2,400 implies more than 10
percent downside from current levels; his base case of 2,750 implies
around 3 percent upside.

WATCH: Bargain hunting in the 'bear' den

45% of the S&P 500 is sitting in

 the bear's den  
5:49 PM ET Thu, 25 Oct 2018 | 09:06

Thomas Franck
Investments Reporter

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