The 3 signs that anticipate falls in global stock markets, according to Morgan Stanley

For this reason, they stand out three signs that anticipate problems for world stock markets despite recent increases

1. Assets Prepare for Higher Interest Rates

“The bond yields have risen significantly, with the 10-year Treasury yield reaching 4% and the 2-year yield, sensitive to policies, reaching 4.6%, its highest level since November”, they analyze from Morgan Stanley.

In addition, in the last two weeks, the US dollar has strengthened by 3%, while the prices of the west texas oil they went up about $3 per barrel.

These movements suggest that stock investors are ignoring fundamental data that is having an impact on other assets, and may be caught off guard when higher rates finally affect stock valuations.”

2. Inflation expectations

The market’s inflation estimate for the next two years rose to 2.9%, well above the central banks’ 2% target.

“Perhaps the most important thing is that merchants have raised their expectations for the terminal rateor how high the Fed will take the fed funds rate in this raising cycle, up to more than 5%above market-based forecasts in early February of around 4.75%,” said Morgan Stanley’s Global Investment team.

3. Consumption falls

The inflation in the United States it is slowing down at a slower rate than anticipated. The CPI stood at 6.4% in the year-on-year rate in January, a decline that was below market expectations, which expected a drop to 6.2%.

In monthly terms, the general CPI rose in the US by 0.5%while the underlying rate grew by 0.4%. A trend that was also confirmed by the wholesale side, with an increase in producer prices of 0.7% in January, stronger than expected.

Morgan Stanley analysts believe that these factors have yet to change the bullish mood in stocksbecause “any recent attempt at market appreciation has been met with investors trying to ‘buy the dip’, driving stock prices back up.”

In this sense, they warn that the continued resilience in consumption tends to mean persistent price pressureswhich in turn will lead central banks to keep interest rates not just higher, but for longer, putting pressure on equity valuations.

Thus, they estimate that the “no landing” theory may simply be a “hard landing” that is being postponed.

“Investors should consider adding defensive stocks that have recently been sold in a timely manner, with a focus on cash flow and dividend yields, as well as the potential for profit.”“, they conclude from Morgan Stanley.