Morgan Stanley sees two ‘broken legs’ for stocks, heralding ‘significant market correction’

marketwatch ^ | 08/08/2018

[BenLurkin]

For years, one of the primary factors lifting the U.S. stock market has been the fact that some of the economy’s biggest, fastest-growing names just kept rising.

The strength of growth stocks, in particular some large technology and internet plays, has been a boon for momentum investors, who bet that recent outperformers will continue to do better than the overall market over the medium term. This trade has been one of the easiest ways for investors to make money, but analysts are increasingly concerned that its era may be drawing to a close.

Morgan Stanley called for “a breakdown in both legs of momentum,” which it warned “could be a trigger for a significant market correction.”

Fewer stocks are carrying the load of the market, a sign of exhaustion and, in our view, a bad signal for further price gains,” the investment bank’s team of analysts wrote. It added that a recent example of a major stock hitting a notable milestone for strength — Apple Inc.’s AAPL, -0.13% market capitalization cresting $1 trillion — “sure sounds like a ‘ringing of the bell’ to us.” Rather than the $1 trillion valuation being a sign “that all is right with tech,” Morgan Stanley wrote, it “could be a meaningful historical market for a tradable top.”

But other analysts see Wall Street as primed for a breakout.

[SunkenCiv]

Thanks BenLurkin. IOW, Trump bad, ruin economy, blah blah blah. :^)