Morgan Stanley Sees Weaknesses in Stock Rally

The S&P 500 may have hit a record high recently, but Morgan Stanley spies some disturbing trends that make it wonder how long the good times will roll.

For one, according to Michael Wilson, chief US equity strategist at the firm, value stocks are perkier than growth ones lately. For another, there’s a preference for at least some defensive sectors, too.

In this latest iteration of its downbeat views—Morgan Stanley said several weeks ago that a correction is coming that will be at least as bad as last winter’s—Wilson wrote in a research note that storm clouds are gathering.

He cited Federal Reserve interest rate increases, rising cost pressure on companies, and the brewing trade war with China. “The market seems to be (rightly in our view) worried about growth slowing later this year and next.”

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Indeed, the spread between defensive and cyclical stocks has dipped in the past few weeks. Some defensive names like telecom (up 4.98% this month) and healthcare (5.45%) are doing well.

But cyclical stocks such as materials (1.45%), industrials (1.91%), and energy (-2.27%) aren’t so much. The picture isn’t that clear-cut, however. Other defensive sectors aren’t so hot: Consumer staples are up just 1.01% and utilities 1.38%.

To be sure, the S&P growth index still outstrips the value index, but thus far this quarter, the gap has narrowed. Growth is up 8.13% while value has gained 5.02%. For the year to date, growth blows away value, 15.2% to 1.45%.

Tags: Morgan Stanley, S&P 500, Stock Market

After a turbulent half-year, one of Denmark’s largest pension plans added 1.1 billion Danish krone ($172 million) for the six months ended June 30, boosting assets by just 2.8%.

PensionDanmark, which has $37 billion in assets under management, saw its assets grow both through contributions and investment returns. Top–performing asset classes were real estate, private equity, and infrastructure, slightly underwhelming as they returned 4.4%, 4.2%, and 2.7%, respectively. Stocks and bonds did not fare well. The fund did not report those returns, but Torben Möger Pedersen, PensionDanmark CEO, said they were “close to zero.”

In 2017’s first half, the fund returned 8 billion Danish krone. Its 65- and 40-year old members achieved a 3.3% and 5% return on their savings, respectively.

Pedersen called the half-year “challenging with moderate investments returns…alongside with substantial fluctuations in especially share prices.” He said the results were “satisfying” and noted that there was widespread employment for the fund’s 721,000 members during the period.

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Members aged 60 and 40 saw a 0.6% and 0.5% return on their savings, respectively.

The fund did not disclose its allocations and its overall returns over the period.

PensionDanmark manages the assets of its plan members in a lifecycle-type product, where allocations shift in accordance with a person’s age. Allocations for those under the age of 41 were 59.5% equities and credit, 25.6% in alternatives, and 14.9% in a variety of bonds. For 60-year-olds, the fund had invested them in 42.4% investment grade assets, 35.5% equities and credit, and 22.1% alternatives.

PensionDanmark expects to have close to $58 billion in assets under management by 2050, according to its website.

Tags: Denmark, Half Year Returns, Pension, PensionDanmark