Morgan Stanley, one of the World’s largest investment bank holding companies, has suggested this week that the globe could face an even bigger stock market correction than it did in February 2018.
It points to the initial correction in February with trade war tensions mounting followed by a slow recovery over the last few months with US companies performing better than expected. That said, with trade war rhetoric between US and China growing, even this week, speculation is rife that the White House will ramp up tariffs more quickly than expected which will not only affect China but will also hit globally all the US’s major trading partners including Mexico and Europe, in particular the German auto industry. Likewise, we see tech stocks and development industries, particularly here in the UK also being affected.
Add to this, Italy and its massive debt problem and Brexit and no deal in sight, both would appear to add to Morgan Stanley’s negative outlook. Morgan Stanley suggest that US growth is at or near its peak and the odd sell off in certain sectors may only be the signal of a much wider ‘sell off’.
We cannot disagree with the sentiment. We have talked all year of 2018 being volatile and may be investors are now starting to look for value rather than chasing growth i.e. buy undervalued stock, sell high value stock that has reached its peak. If professional institutional investment fund managers are doing this, you can expect a slow down in market growth and a potential correction. As you know we have been neutral/negative for UK/US/Europe since around April time and we see no change to that. If there is a correction then that is when we will look for value overall and become more positive.