Big Funds Make Big Moves, Lets Digest The Aftermath

If you’ve been struggling to get a read on whether markets are about to go higher or lower, don’t feel bad. Even the top minds along Wall Street can’t seem to agree. Here’s what they’re saying in four of the world’s biggest investment houses – Morgan Stanley, Blackstone, BlackRock, and Goldman Sachs – and the portfolio moves you could make if you think they might be right…

Here’s the view from Morgan Stanley

Morgan Stanley’s top US stock strategist Michael Wilson recently did an about-face that caught a lot of people’s attention. Though usually pessimistic, he now has a positive short-term outlook on the S&P 500, ever since it bounced last week off its 200-day moving average. However, it’s not a complete reversal: he still sees disappointing earnings revisions ahead for companies.

What’s the opportunity?

Markets are hard to predict at the best of times, but when technical indicators and economic fundamentals give conflicting signals, it gets even trickier. I prefer following technical indicators in these situations.

They tend to limit losses and prevent stubborn fundamental views from clouding what the market is “saying”.

Right now, the technicals suggest the stock market is pretty comfortable with current interest rate levels. If you agree, consider buying the SPDR S&P 500 ETF (ticker: SPY; expense ratio: 0.1%).

Here’s the view from Blackstone

Joe Zidle, Blackstone’s chief investment strategist, wrote in February that inflation will decrease, but not smoothly return to comfortable levels. Blackstone owns 250 portfolio companies employing ~700k people, giving unique insight into the labor market and wage pressures. In a recent survey, respondents expect mid-single digit percentage wage increases in 2023, vs. pre-Covid low-single digits. Though job openings remain high, slowing growth should ease competition for hires, CEOs said.

For now, Blackstone’s top strategist says wage pressures will likely lead the Federal Reserve (the Fed) to keep rates higher longer, hoping to cool inflation from bigger paychecks. So, adding duration – assets sensitive to high rates – to your portfolio may not be wise.

What’s the opportunity?

Cash is king, or at least looks grand, with rates expected to stay high. In the US, risk-free cash returns on short-term Treasuries are over 5%. Similarly, in the UK, one-year NS&I bonds yield 3.97%.

Here’s the view from BlackRock

Rick Rieder, BlackRock Global Fixed Income CIO, is much more optimistic about assets in 2023 than 2022. He says 5% cash returns look good, but European stocks look better. Not suggesting going all-in on European shares, but valuations and technicals look far better than in the US. He also sees opportunities in Japan and China stocks. For the US, he sees slowing growth this year, then rate cuts next year. He doesn’t see massive government spending, given growing debt, high interest costs, and a divided Congress. The “pandemic” rebound helping the US, Europe, and China will fade next year, he says. He sees 10-year Treasury yields at 2.5% next year, down from 3.97% now.

What’s the opportunity?

Rieder’s outlook looks rosy for risk assets. To bet on European equities, consider the iShares MSCI Eurozone ETF (EZU; 0.52%). To wager on China’s shares improving, think about the iShares MSCI China ETF (MCHI; 0.58%). For Japan, pick stocks rather than a country ETF.

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