By CCN Markets: Dow Jones futures extended losses in early trading Wednesday after Morgan Stanley cautioned investors over a possible recession.
Even with Federal Reserve rate cuts on the horizon in July, Morgan Stanley equities strategist Michael Wilson warned it might be too little, too late to prevent a recession.
“Fed could cut as soon as July but it may not halt slowdown/recession.”
Dow Jones futures crumble on Wednesday
The Dow Jones Industrial Average (DJIA) is heading for a weak open on Wednesday. At 6.15 am ET, Dow futures are down 63 points (0.24 percent), extending Tuesday’s losses.
S&P 500 futures followed the Dow lower, tumbling 9.75 points (0.34 percent) while the tech-heavy Nasdaq Composite Index also pointing to a lower open. Nasdaq futures are down 42.75 points (0.57 percent).
“Very real macro risks” indicate recession
Wilson pointed to various market risks including Friday’s poor payroll data. The jobs numbers came in much lower than expected. Throw in low inflation and rising trade tensions, and the Dow is on thin ice.
The Morgan Stanley analyst said investors are too complacent about the Federal Reserve’s forthcoming interest rate cuts. Although monetary easing has been a boon for the economy in previous downturns, this time around, a rate cut might not be a silver bullet.
The Dow mounted an epic seven-day rally on the back of Dovish Fed comments. But the July rate cut might come too late to stem the bleeding.
Dow traders: time to get defensive
Wilson urged his clients to act with caution, recommending they start building defensive plays into their strategy.
“Investors should continue to skew portfolios defensively.”
It suggests the Dow’s latest rally is a fake out, powered by unrealistic expectations of monetary easing.
Morgan Stanley’s broader evaluation of the stock market is equally gloomy. They predict a period of “stagnation” through the rest of the year.
Is a recession imminent?
Morgan Stanley isn’t the only Wall Street firm with recession fears. Earlier this month, J.P. Morgan Chase and Co. said the likelihood of a 2019 recession is now at 40 percent. Only a cooling of trade tensions could bring stability to the market, the firm said.
Wall Street is worried that traders are not braced for the true impact of a trade war.
“Recent conversations with investors have reinforced the sense that markets are underestimating the impact of trade tensions… they appear to be overlooking its potential impact on the global macro outlook.” – J.P. Morgan
As the Dow’s seven-day rally fades, are traders starting to take recession fears seriously?
Last modified: September 23, 2020 12:46 PM