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Morgan Stanley to Reps: Tell Clients We’re in a Bear Market

June 4, 2018

Wirehouse Morgan Stanley is telling advisors and the general public that markets have turned to a rolling bear stance, CNBC reports, and it will be more difficult for FAs and investors to make money. The change of direction is “fooling everyone” and investors and advisors aren’t aware of it despite the fact “there’s a lot of pain out there,” the firm’s chief U.S. equity strategist Mike Wilson says.

Yet for Wilson, being in a bear market doesn’t necessarily mean the market will drop by, for instance, 20%. Entering a bear market means a tougher environment with higher volatility – so portfolios can’t afford as much risk, he says. And for advisors this means portfolio management will become more difficult than the bull market afforded.

The wirehouse also said an end to easy investing is here and warned that after nine years of markets outperforming the real economy, things might switch.

Portfolios will have to rebalance equity holdings for cash, making returns more difficult. Backing its own view, Morgan Stanley recently lowered its overweight allocation in global equities to an equal position, CNBC reports.

Wilson tells CNBC the market has brushed off any news of tax cuts, global growth, and supportive financial conditions – evidenced by recent stock market performance across sectors. So far this year, every sector has dropped at least 11% or 12%, with some falling up to 20%.

(iStock Photos)

For FAs and investors, Wilson says the bear market environment will continue for the near future. He says the market was overdue for a correction and the bear market could last through the end of 2019 as inflation returns, monetary policy tightens, and the political outlook remains unknown. The question on his mind, he says, is not if we are in a bear market but whether “this turns into something more sinister.”

By Garrett Keyes
  • To read the CNBC article cited in this story, click here.