“Morgan Stanley Smith Barney is out with its latest Asset Allocation and Strategy Weekly report to its clients.
Despite improving economic conditions, the wealth management firm is sticking to its rather cautious stance on the markets.
As new challenges and opportunities appear, we continue to evaluate our risk exposure and tactical positioning. Our work suggests that many safe havens should experience less vulnerability in the likely challenging economic period ahead. As a consequence, our asset allocation models overweight global cash, market weight global bonds and alternative/absolute return investments and underweight global equities.
Here’s their latest roundup of their bearish factors that stock investors should consider:
Equities Bearish Factors
- The ongoing deleveraging in the big developed-market (DM) economies will take several years to run its course, the byproduct of which is sluggish growth for a long time.
- Europe is at risk of slipping into a “lost decade” triggered by lack of leadership and institutional flexibility at the European Central Bank and elsewhere.
- Global growth is overwhelmingly dependent on EM policymakers. Many are not as seasoned as DM policymakers.
- Sovereign debt burdens are too high in several developed countries. Hard political choices need to be made or currency values are at risk.
- US home prices, as per the S&P/Case-Shiller Home Price Index, have not improved much from their cyclical low.
- The benchmark 10-year US Treasury yield remains near a multi-decade low. If it rises in the years ahead, it would be a headwind for expansion of P/E multiples.
- “Event risk,” such as a terrorist attack, is ever-present.
However, the firm does recognize that there are bullish forces in the market as well. Here’s their list:
Equities Bullish Factors…”
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