Morgan Stanley (MS) analyst Ronan Carr thinks markets might start to focus on tightening monetary tightening in the coming months as the end of QE2 in the US approaches, the ECB and potentially other central banks of develloped countries start to raise rates.
Morgan Stanley added the graph below shows how markets reacted when QE1 approached its end.
In 2009 the start of the bull market coincided with the announcement of QE1, and the bull market reached its peak with the end of QE1 in 2010. As you might remember, the current bull market started early autumn 2010 when QE2 was announced.
Combined with the other headwinds he sees – peaking leading indicators, margin pressures and inflation’s impact on growth Ronan Carr suggests a sector rotation from cyclical into defensive sectors, namely utilities, consumer staples, as well as telecom.
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