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“Are call really hasn’t changed,” said the strategists.
They explained the “heated rally” in the fourth quarter was led by the “old economy,” including financials, industrials, energy, and materials, and was based on the China reopening story, “which was legitimate.”
“Technology stocks obviously disappointed in the quarter,” they stated. But now, they note that “tech is obviously going to the moon,” and now this rally is loved because this is what people want to buy and own.
However, Morgan Stanley would characterize this as the bear market continues. The strategists commented that “This is what bear markets do.”
“They are designed to fool you, confuse you, make you do things you don’t want to do,” they added. “We think the overriding driver of this year’s rally has been increased liquidity.”
As a result, the analysts said the firm believes the fundamental case does not support where stocks are currently trading and that the second half is “probably going to be a bit choppier and downward” in the S&P 500.
