Now featuring a record gap between fantasy and reality, measured in terms of economic data, fund flows, and delusion:
"The economy served as the only issue where a majority said they approve of Trump's performance, according to the poll"
Morgan Stanley just came out with an unprecedented "sell" recommendation on global stocks, because apparently, escalating trade wars, earnings recession, global slowdown, and U.S. economic implosion can't be offset with a quarter point rate cut. Especially in light of the fact that the last two easing cycles ended down 50%+. In other words, they are not falling for Trump's so-called "trade truce" coming at a higher level of tariffs...
“A US-China trade deal that was widely expected to be resolved led instead to a new round of tariffs. Global PMIs have continued to fall. And Morgan Stanley’s Business Conditions Index, a survey of how our equity analysts feel about their companies, suffered its largest one-month decline ever in June"
This reversal confirms the broadening top "megaphone" formation:
"It is a common saying that smart money is out of market in such formation and market is out of control. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage"
Meanwhile, there are indications that Morgan Stanley's advice to clients is coming late in the game. As it appears that Wall Street has been fading this rally for quite some time now:
ZH: Global Stock Market Outflows Largest On Record
"...there is now a record disconnect between flows & returns in 2019"
The article offers its own explanation, however, in my opinion, the reason for the year-to-date melt-up in the face of consistent selling by institutions:
1) Record stock buybacks
2) Short-covering
3) Global central bank easing, algo-driven momentum
4) Passive indexing
5) Manic speculation
Factors one and two are not sustainable long-term, while it remains to be seen if global central banks can keep this party going. Clearly, Morgan Stanley doesn't believe so:
"The Morgan Stanley strategist argued that investors still haven’t learned that when easier policy meets weaker growth, the latter tends to matter more for stock market returns"
“The market is underpricing the risk that companies lower full-year guidance"
Another factor not discussed in the above article is the crowding into "low volatility" recession safe havens. Which has created an extremely narrow market supported by very few overvalued stocks. Further exacerbated by passive indexing.
With regards to manic speculation, there are signs that the speculative fervor is once again burning out.
Here we see the equity call/put ratio tracking the Value Line Geometric Average lower:
Consistent with declining speculative fervor, most of the selling year to date appears to be in the most speculative market, the Tech-heavy Nasdaq:
"Apple shares fell more than 2% after an analyst at Rosenblatt Securities downgraded them to sell from neutral. The analyst said the stock will “face fundamental deterioration over the next 6 to 12 months ” as Apple’s iPhone sales disappoint and growth in other products slows down."
“Risk is increasing in tech, especially with high priced stocks,” Sacconaghi wrote in a note Monday."
