- Andrew Slimmon from Morgan Stanley (MS) Investment Management believes the market is in the later stages of a classic bull market cycle, noting a shift from investor caution to optimism as evidenced by strong retail flows into equities.
- He expresses concern over signs of market euphoria, particularly when unprofitable tech and biotech sectors lead market gains without fundamental backing, suggesting this could signal the market’s peak.
- Slimmon points out that while there’s still significant money on the sidelines, the pace of Federal Reserve rate cuts will influence how quickly the market moves into a potentially dangerous euphoric phase, advocating for a cautious approach to the current market dynamics.
In a recent segment on CNBC’s ‘Squawk Box’, Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management, shared his insights on the current state of the stock market, suggesting that we are in the later stages of a classic bull market cycle. Slimmon explained that following a 25% correction in 2022, the market saw a significant buying opportunity, though many investors initially sat on the sidelines, deterred by the allure of 5% risk-free returns from money markets. However, as we’ve moved into the third year, there’s a noticeable shift to an optimism phase, with substantial flows into equities, particularly from retail investors, indicating a change in investor sentiment.
Slimmon highlighted that despite the high levels of U.S. stock ownership, there remains a significant amount of money—$8 trillion in money markets—waiting on the sidelines, which could potentially fuel further market growth. Yet, his concern grows as he observes signs of market behavior transitioning towards euphoria, a phase typically preceding market downturns. He pointed to the recent performance of unprofitable tech and biotech sectors as examples of this shift, suggesting that when market movements lose correlation with fundamentals, it’s a red flag.
While the fear and greed index currently sits at a neutral level, Slimmon’s worry is compounded by the lack of significant IPO excitement and the recent performance of publicly traded private equity stocks, which he attributes to the Federal Reserve’s slower-than-expected rate cuts. He posits that a more gradual approach to rate adjustments might extend the bull market’s life but also warns that aggressive cuts could hasten the arrival of the euphoric stage, potentially leading to a quicker market peak. His analysis underscores a cautious optimism, advising investors to watch what people do with their money rather than what they say, as real investment flows provide clearer signals of market health and direction.
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