FAST FIVE: Morgan Stanley Calls It: Friday Marked The High For Stocks, Now Comes The Selling

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Drilling down to the US more specifically, long momentum stocks in the US underperformed short momentum stocks by 2.68%, reminiscent of what we witnessed during the momentum breakdown in September.

Given how fast the US economy accelerated last year, there is little doubt we saw double ordering of many items, which of course ended up in inventory when demand slowed from the stimulus-induced levels.” Based on the latest wholesale inventory and sales data from this past week, Wilson claims that “we are far from completing this inventory cycle by looking at the spread between sales and inventory growth.” Indeed, the red bars shown below suggest we are still many months away from where we were in 1Q2016, the last time we had an inventory correction of this magnitude and when markets bottomed.

Several other leading indicators on labor also suggest we are closer to this decision than “meets the eye.” To Wilson, the bottom line is that growing trade tensions between the US and China were used as an excuse by  companies and investors for the disappointing growth experienced this year.

Given the unpredictable path of these trade tensions, they have also been used as a reason by many companies to hold onto employees longer than they normally would for fear of missing out on the potential boomerang rebound from a substantial trade deal.

It is here that Wilson's gloom shines – so to speak – through all the fading optimism, as the strategist now expects “Friday to mark the near-term highs and the next few weeks/month to resemble what we saw last December albeit less dramatic given the lower interest rates and easier monetary policy that now prevails.” Tyler Durden Mon, 10/14/2019 – 14:20 Tags Business Finance.

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