Almost the entire news cycle for stock markets is devoted to howthe trade war has been extremely detrimental for the US economyand that a trade deal could lead to a big rally. To the contrary, one high profile equity strategist is not convinced that the Dow is a buy, or even that Trump’s trade war even matters.
Dow Jones’ Biggest Obstacle May Not Be The Trade War
Morgan Stanley’s Chief US Equity Strategist and Chief Investment Officer Mike Wilsonspoke to CNBCand made his case that the recent trade-driven bump in the stock market is a “sell the news event.” Wilson’s case is compelling; the Dow Jones has been chopping sideways with trade news for some time while theeconomic data has consistently struggled. In fact, there has beenno rise in equities since Trump started imposing tariffs on China. A dying bull market has confirmed Morgan Stanley’s view that the US is in a cyclical decline, and there is plenty of room for corporate earnings to fall further.
Yield Curve Must Steepen Before Wilson Gets Bullish The Stock Market
As the interview demonstrates, the equity strategist does not believe the broader S&P 500 will be able to break out of its current range. This indicates that Dow bulls should also be tempering their enthusiasm.
The strategist perpetuates the view that a bull market will only return when the yield curve starts steepening again. A glance at thecurrent state of treasuriesshould tell you all you need to know about how distant a prospect this is.
Dow Rallies As Trump Teases A Deal With China
It has been a brighter few days for the Dow Jones, as China and the US both appear to be makingreal efforts to make progress in the trade war. Dow futures rose overnight after Trump saidtrade talks were “going very well,”and his blockbuster meeting with the Chinese Vice Premier is clearly in most traders’s cross hairs.
IfMorgan Stanley’s macro viewturns out to be accurate, a lot of stock market investors are going to be caught flat-footed. Equities have rallied this week primarily onhopes of a breakthrough on trade. What a slap in the face for Dow bulls if it turns out that the trade war was only the “cherry on top” of a broader cyclical decline in the US economy.
This article was edited bySamburaj Das. 
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