Another important development that has been spooking the markets is the Fed’s more-dovish-than-expected tone at its policy meeting that ended on March 20. After the Fed’s meeting, the markets started expecting a rate cut as early as the end of 2019. As we highlighted in the Fed’s Dovish Stance Surprised Jeffrey Gundlach, Gundlach thinks that the Fed’s U-turn will add to uncertainty in the market (SPY) and will likely hurt the Fed’s credibility.
Slowdown concerns echoed by several companies
Bank of America
As reported by CNBC, Bank of America Merrill Lynch’s Savita Subramanian believes that the markets (SPY) (DIA) typically see 12 months of gains following an inversion, which she sees as an opportunity. She said, “The Fed’s tone has shifted so aggressively to a dovish stance that I think the real opportunity today is in consumer discretionary stocks.”
As reported by CNBC, Morgan Stanley (MS) equity strategist Michael Wilson said that investors should “remain defensively positioned,” as last week’s yield curve inversion was bearish for stock markets (QQQ) (IVV). He believes that the implications for stocks are particularly strong given that they are now full on valuation.
Morgan Stanley recommends investors get defensive and buy stocks in utilities (XLU) and consumer staples. It also warns investors against consumer discretionary and technology stocks.