By John McDonald
The man widely considered to be “Wall Street’s most bearish analyst” says 2019 is shaping up just as he predicted, and that means big risks for investors in the markets. Morgan Stanley chief investment officer Mike Wilson recently described the U.S. economy as “running on fumes,” despite recent upward surges in the stock market.
“The macro and microeconomic data continue to deteriorate,” Wilson wrote, citing soft jobs numbers, soft retail earnings, and overall soft metrics. He added investors counting on the Fed to lower interest rates and keep the economic cycle spiraling upward are making a mistake. “A rate cut after a long hiking cycle tends to be negative for stocks, in contrast to a pause like in January, which is typically positive,” Wilson wrote. He concluded, “The second half recovery many companies have promised and investors expect is unlikely to materialize.”
Don’t Blame Trade Policy
According to Wilson, the issue is far more fundamental than U.S.-China or U.S.-Mexico relations. While a change in trade policy could give the impetus of the market to rise again (or fall, depending on how the move affects consumer and investor confidence that the U.S. trade engine is set to keep running profitably), the economy’s long-term issues have more to do with its cyclical nature than artificial stimulation.
Wilson said of U.S. trade policy, “The economy was already slowing [before trade issues arose].” He warned that markets and growth will ultimately “disappoint” in 2019 “whether there is a trade deal or not.”
The Markets Will Do What They Want…Until They Can’t
Wilson recommends Wall Street investors maintain defensive positions as we head into the latter half of 2019. He believes utilities and consumers staples are good investments. He also warned investors must seek their own secure investment footing despite an onslaught of information about what other investors are doing and saying to protect themselves and leverage their investments during this volatile market cycle. This includes institutional investors, who, Wilson observed this past April, “seem preoccupied with what everyone else is doing, trying to figure out whether every last dollar is already in the market or if there’s more to go.” He concluded, “To say that FOMO, the fear of missing out, is alive and well would be a gross understatement. My experience tells me that when investors are more focused on what others are doing than on fundamentals, the trend has probably run its course.”
Josh Brown, of Ritholtz Wealth Management, added his own analysis mid-June of this year, “The market just wanted to go up [in June 2019]. I don’t think it mattered what happened [to cause it].” Brown advised against trying to find any logic in today’s Wall Street behavior because, to his eyes, there is very little present. This supports Wilson’s FOMO theory and emphasizes like nothing else that investors must do their own research before making trades or investing in other asset classes in order to make sure their portfolios are on the defensive for what could be a rocky second half of the year.