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“extreme caution for stocks is still warranted here.”

Posted by Richard640 @ 15:19 on October 10, 2018  

Morgan Stanley: “This Dynamic Is The Ultimate Bear Case For Risky Assets”

Here’s why this matters: according to Morgan Stanley, for now, the rotation into defensives – despite the rate move – is keeping a lid on correlation between stocks and is slowing a move lower in the broader indices. But if the rate impact starts to dominate the defensive bid and the flows out of defensive ETFs continue there are important implications – dispersion between stocks will fall, correlation will rise, and volatility for multi-asset investors (including risk parity funds) will spike. 
As Morgan Stanley warns in parting, “this dynamic –  that there could be no safe haven within equities to turn to as rates rise – is the ultimate bear case for risky assets.”
While price action indicates we are not there yet, these flows suggest that unless the violent rotation fades, “extreme caution for stocks is still warranted here.”

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Post by the Golden Rule. Oasis not responsible for content/accuracy of posts. DYODD.