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  • Stocks May Correct in September: Morgan Stanley's Caron

Stocks May Correct in September: Morgan Stanley's Caron

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Bloomberg Sep 3, 2024 22:02 · 29.9k Views

"The equity markets today are asymmetrically skewed to the downside," Jim Caron, CIO of Morgan Stanley Investment Management's Portfolio Solutions Group, says. Speaking on "Bloomberg Open Interest," Caron also says any correction in stocks would likely come from the tech side.

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Transcript

  • 00:00 You're talking about weakness that you would potentially act upon.
  • 00:03 Are we talking just a blanket recommendation there?
  • 00:05 Are you looking at specific segments
  • 00:07 of the market here?
  • 00:09 Yeah, that's a really good question.
  • 00:11 I mean, so
  • 00:12 the way that we think about this is, is we're still going to be led by by by by growth and tech, if you ask me, right?
  • 00:18 So
  • 00:19 if there's weakness in the market, it's more likely to come in the large cap, particularly the tech sector.
  • 00:25 That's just the highest part of the index, right?
  • 00:27 So if you get weakness, that's generally what starts to get hit
  • 00:30 the hardest.
  • 00:31 So therefore, I also would think that that actually starts to recover the best.
  • 00:35 However, what we are starting to realize and we're starting to observe
  • 00:40 is that there has been a broadening of the market.
  • 00:42 So there's great opportunities to buy the real estate sector, to buy materials, to buy energy.
  • 00:47 These are all great sectors too, even to start to look at industrials, healthcare.
  • 00:52 So it is somewhat of a blanket statement, but if you really want to press it,
  • 00:56 I think that you're going to probably buy the stuff that went down the hardest.
  • 01:00 And that's if there is, if there is a correction,
  • 01:03 then I I would argue that it would, it would likely come from the tech side.
  • 01:07 Jim, when you think about the week ahead, of course, there's a lot of economic data starting with just about an hour from now with that ISM data.
  • 01:14 And if you look at the Bloomberg economic projections here, the panel that Bloomberg reads from, all economists here or, or a subset of one at least,
  • 01:23 almost all of them are projecting a rebound here from a poor reading last month.
  • 01:28 At the same time, you see the labor market starting to weaken.
  • 01:31 How do you read the macro into your investment decisions at this point, given that there's such diversions in views?
  • 01:39 Yeah.
  • 01:39 This is where there's some inconsistency, I think in the risk SKU that's in the markets right now,
  • 01:45 because I think that the equity markets today are asymmetrically skewed to the downside, at least over the near term at these current price levels.
  • 01:54 Let me explain that.
  • 01:55 If if we get a a payroll number, that's the number everybody's going to really focus on this week, that comes out to be weaker.
  • 02:02 Consensus is somewhere around 165,000 jobs, 4.2% unemployment rate.
  • 02:07 If that comes out even a touch weaker,
  • 02:09 I think that equities can move disproportionately down more than they can actually move up.
  • 02:14 So I think the market is going to really focus on the bad news right now.
  • 02:17 So bad news is really
  • 02:19 bad news
  • 02:20 and and that is probably what creates the correction that I think is going to occur
  • 02:25 in September.
  • 02:27 That's also true with ISMS.
  • 02:28 It's also true with, if we want to look at jobless claims, the JOLTS data, all of these other data series
  • 02:33 that are coming out in the near term.
  • 02:36 I think there's an asymmetry in risk
  • 02:38 for equities to see this as as more negative.
  • 02:41 We also have to recognize
  • 02:43 that the valuations, I mean we're, we're we're trading on right now
  • 02:47 2025 about 14%
  • 02:50 earnings per share growth over 2024.
  • 02:53 This is the market is priced to I'd say close to perfection
  • 02:58 and in a reasonable risk range.
  • 03:00 I'd say 5200 to 5650 is is is my range.
  • 03:04 I think we're at the top of that range for right now unless we get new information.