Once offering the worst return on Wall Street, cash is now looking like the best asset to own, says Morgan Stanley

Stock sellers are poised to pick up where they left off on Friday as the market appears to be waking up from its August slumber with a vengeance.

As Goldman Sach’s chief US equity strategist David Kostin told clients after the S&P 500 SPX:
-1.29%
took just 17 weeks to reach its year-end target of 4,300, “upside seems limited while downside risks loom”. His concern is that if the US enters a recession, we could fall into a 2000 trap where the market falls even after rate hikes halt.

Which brings us to ours call of the day by Morgan-Stanley strategist Andrew Sheets, who says investors should consider cash as a viable investment strategy, although it hasn’t looked like such a successful proposition in the past.

“Holding cash…has been a decidedly defensive decision for most of the past 12 years. Of course, it offered a worse return than anything else on the market,” Sheets told clients in the bank’s Sunday note. This strategy also proved expensive as the dollar outperformed both the S&P 500 SPX,
-1.29%
and 10-year US Treasury Notes TMUBMUSD10Y,
2.989%
between 2010 and 2020 (with the exception of 2013 and 2018), he added.

Bloomberg, Morgan Stanley Research

“But the idea of ​​holding cash means paying for insurance is no longer true,” said Sheets, noting that US 6-month Treasury bills are TMUBMUSD06M.
3.131%
Yields (3.1%) are the highest since late 2007, offering 157 basis points over S&P 500 dividends, 21 basis points over 10-year Treasuries TMUBMUSD10Y,
2.989%,
and just 60 basis points below the AGG composite US bond index,
-0.70%.

“For USD investors, cash is no longer a significant drag on a portfolio’s current yield,” he said. Even holding cash in Europe, which used to be extremely expensive, is no longer, like the German 6-month note TMBMBDE-06M,
0.325%
Yields are positive again for the first time since 2014.

Streets said that on a cross-asset basis, US dollar cash offers high current yield, liquidity and a better 12-month total return than Morgan Stanley’s own implied forecasts for US equities, US Treasuries, investment grade and High Yield Bonds – “with significantly lower volatility.”

For this reason, Morgan Stanley’s core-optimized fixed income portfolios are overweight short-dated fixed income, he said. The dollar is also strengthening against other currencies and the Bank’s FX experts see further strength of this kind ahead, particularly against the euro EURUSD,
-0.33%,
which again knocked for parity on Monday as concerns mounted over winter fuel shortages in Europe.

The market

stock futures ES00,
-1.20%

YM00,
-1.00%

NQ00,
-1.53%
slide south, with bond yields at TMUBMUSD10Y,
2.989%

TMUBMUSD02Y,
3.301%
reflects cautious sentiment and oil prices CL.1,
-0.26%

BRN00,
-0.43%
negative pressure. Investors Continue to Push Dollar DXY,
+0.24%
higher. Elsewhere, it was a choppy day for SXXP stocks in Asia and Europe,
-0.95%
are under pressure.

The Buzz

Among this week’s data and events we get PMI numbers, second quarter GDP, the Fed’s favorite indicator of inflation and the Federal Reserve Board meeting in Jackson Hole where Chairman Jerome Powell will speak on Friday morning.

On the meme stick beat, AMC Entertainment AMC,
-6.58%
crashes ahead of the start of trading for Preferred Equity Units or ApesL and London-based Cineworld CINE,
-25.63%
confirmed that it was considering filing for US bankruptcy. Stock meme fellow, Bed Bath & Beyond BBBY,
-40.54%,
also sinks.

CEO Elon Musk told the Tesla TSLA,
-2.05%
will increase the price of the Full Self-Driving feature to $15,000.

join cvs cvs,
+0.40%,
Amazon AMZN,
-2.86%
is reportedly among the bidders for healthcare company Signify Health SGFY,
-2.44%.

China’s central bank cut interest rates on loans, a move aimed at boosting the shaky real estate market. Meanwhile, power rationing has been extended in the drought-stricken southwest, which is affecting industrial firms and Tesla in Shanghai.

Retail and technology names will report with Zoom Video ZM this week.
-3.57%
and Palo Alto Networks PANW,
-0.84%
due after Monday close. Macy’s M,
-4.53%,
Dicks sporting goods DKS,
-1.26%,
Dollar Tree DLTR,
-0.22%
and Dollar General DG,
-1.47%,
main field PTON,
-7.50%,
Nvidia NVDA,
-4.92%,
Salesforce CRM,
-2.21%
and Marvell MRVL,
-2.58%
among other highlights.

A group of Apple AAPL,
-1.51%
Workers are reportedly resisting a return-to-office order for the next month.

Fans rushing to HBO’s Game of Thrones prequel House of the Dragon, which has just completed a $100 million marketing campaign, crashed the app.

The best of the web

As the war nears the six-month mark, Russia’s top diplomat warns of a long conflict ahead

Americans rank a threat to democracy as their #1 problem, a new poll shows

The crypto geniuses who vaporized a trillion dollars.

The graphic

RBC Capital’s head of US equity strategy, Lori Calvasina, argues that even with falling earnings forecasts, stocks can and do make big bottoms, with her chart below showing those moments in history. While Calvasina remains concerned that likely further downsides for 2022 and 2023 EPS forecasts could result in a more volatile stock market, she doesn’t believe this will lead to a new low for stocks being made.

RBC US Equity Strategy, S&P Capital IQ/ClariFI, CIQ Estimates

top ticker

These were the most searched tickers on MarketWatch as of 6 a.m. Eastern Time:

ticker

security name

AMC,
-6.58%

AMC entertainment

BBBy,
-40.54%

bed bath beyond

GME,
-3.80%

GameStop

TSLA,
-2.05%

Tesla

CONDITIONS,
+205.99%

GigaCloud technology

AAPL,
-1.51%

Apple

NEVER,
-4.32%

NEVER

ENDP,
-1.40%

Endo International

AMZN,
-2.86%

Amazon

BBY,
-3.51%

best buy

Random Reading

“I don’t want to be part of a slow decline. Why a 3-star Michelin chef quits

You have to fight for your right to have fun.

Need to Know starts early and will be updated by the opening bell, but sign up here to have it delivered to your email box once. The emailed version will be sent around 7:30am EST.

Read  Creative, Clever, and Connected: The Best Gifts for Digital Artists

Leave a Comment

Your email address will not be published. Required fields are marked *