Morgan Stanley
  • Wealth Management
  • Apr 28, 2020

Shalett: Markets Will Need to ‘Take a Breath’

After a fast bounce off March lows, the bear market rally has left prices disconnected from underlying earnings forecasts, says Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett in an April 28 BBN Bloomberg interview. Learn how she suggests investors can position their portfolios for what’s next.

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Wealth Management Chief Investment Officer Lisa Shalett tells BBN Bloomberg

“Bouncing off the March 23 bottom, we’ve come really far, really fast. As measured by the S&P 500, stocks are up 30% while profit estimates are down 20%. Although markets sometimes do run far ahead of fundamentals, we’re getting into a zip code where the market is going to have to check itself and recalibrate whether the prices being paid are getting too disconnected from the underlying earnings forecasts.

“With the Fed expanding its balance sheet by $6 trillion to $7 trillion and the federal government spending another $3 trillion to $4 trillion, we’re throwing $10 trillion to $11 trillion of stimulus at a U.S. economy that in total GDP is $23 trillion. That’s 50% of GDP thrown at a problem where even in a worst-case suppression scenario for 2020, GDP is down 5%. That policy response, combined with improving sentiment around reopening, has been at the heart of the improving liquidity and enthusiasm.

“We also believe the indexes have gotten over-concentrated in the mega-cap tech category killers, which are selling at a 45-50 P/E while the next 495 companies are at 15-17 times P/E. We’re telling people to dump the passive index, with all this concentration risk, and be active stock pickers among those other 495 companies—in financials, industrials, energy, materials, and even some parts of health care—that have not been repriced yet.”

Shalett: Markets Will Need to ‘Take a Breath’