Morgan Stanley’s optimistic view of the economy isn’t keeping it from warning about a looming correction in the U.S. stock market.
“The issue is that the markets are priced for perfection and vulnerable, especially since there hasn’t been a correction greater than 10% since the March 2020 low,” said Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, in a note Tuesday. The bank’s global investment committee expects a stock-market pullback of 10% to 15% before the end of the year, she wrote.
Megatech stocks have been defying the transition that stocks typically make mid-cycle, with their price-to-earnings ratios remaining elevated despite declining in other areas of the market, such as cyclical and small-cap stocks, the Morgan Stanley report shows. Meanwhile, the yield on the 10-year Treasury note TMUBMUSD10Y, 1.367% rose almost 5 basis points Tuesday to 1.37%, the highest since July 13, according to Dow Jones Market data. Bond yields and prices move in opposite directions.
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