Markets: Emerging supply-chain imbalances stand out as a risk – Morgan Stanley


As is often the case with bull markets, a lengthy run of good news and better-than-expected economic data has helped propel stocks to all-time highs. Investor risk-taking has increased, and confidence has begun turning into complacency. Now, new risks are emerging. Key among them: mounting supply-chain woes that are making it harder for businesses to keep up with soaring demand, Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley briefs.

See: Four key reasons why eurozone equities will outperform their US peers in the remainder of 2021 – CE

Reasons for concern have begun to materialize amid new stock-market highs

“The supply-chain imbalances are becoming so severe that their risks go beyond the short-lived bout of inflation that many analysts predicted. Rising real-time production delays could crimp sales and drag down corporate earnings and economic growth.”

“Supply-chain pressures aren’t the only concerns. In the weeks and months ahead, investors may also want to be cautious about: Soaring home prices: The decline in housing affordability could stall one of the most important engines of US economic growth. High levels of margin debt: Margin debt has grown 72% YoY to levels that have often preceded stock-market declines. Policy headwinds: Policy could become a headwind this fall, as Federal Reserve officials begin to discuss a timetable for tapering bond purchases and Congress debates tax and stimulus plans.”

“Consider that positive economic surprises and the pace of earnings forecast revisions may be peaking. As such, investors may want to begin slowing their deployment of cash into US equities, while they await better entry points into the market, such as a resumption of positive earnings revisions or a US market correction. We also suggest favoring non-US stocks over the next six to nine months.”

 

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