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  • Too Early to Buy the Dip, Morgan Stanley's Slimmon Says

Too Early to Buy the Dip, Morgan Stanley's Slimmon Says

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Bloomberg Sep 9 20:40 · 17.2k Views

Andrew Slimmon, Morgan Stanley Investment Management senior portfolio manager, says the US economy is slowing but not breaking. Speaking on "Bloomberg The Close," Slimmon also says he expects small-cap and high-growth stocks to bounce.

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  • 00:00 Andrew, do we buy the dip or is this just sort of a, a little bit of rally and a downtrend?
  • 00:05 Well, I think you're right what you said before, which is a dead cat bounce.
  • 00:08 It was a pretty bad, it was a pretty bad week last week.
  • 00:11 So I,
  • 00:12 I think you're right.
  • 00:14 I, I just think it's, you know,
  • 00:16 it's still early September.
  • 00:17 It's way too early.
  • 00:18 You know, the market is barely down from the high.
  • 00:21 We had a pretty nasty correction in August and usually you get reverberations that are more than this.
  • 00:26 So
  • 00:27 I think
  • 00:28 your guest Joe Quinlan was before yeah, buy the dips, but I think it's a little bit premature.
  • 00:34 We could, there's a lot of things uncertainty right now.
  • 00:36 I think we're going to get a rally
  • 00:38 into
  • 00:39 the at towards the end of the fourth quarter, but it's too early.
  • 00:42 So, So what do you need to get through to get through the election?
  • 00:44 Do we need to get through the Fed cutting cycle starting until you can have more conviction possibly or maybe just more
  • 00:49 of a decline, right.
  • 00:51 And, and I think, but the,
  • 00:53 you know, keep in mind, I don't
  • 00:55 anytime stock prices diverge
  • 00:58 from fundamentals,
  • 00:59 it creates opportunities and that's what you want to see.
  • 01:02 So I think the economy is slowing, but it's not breaking.
  • 01:04 I think the high yield market would be telling you
  • 01:06 bigger problems.
  • 01:07 I think you'd see some of these cyclical areas rolling over if there's a deeper problem.
  • 01:13 But in short term,
  • 01:14 you know, the stocks are popularity contest and I think they're unpopular right now.
  • 01:18 And that for a portfolio manager creates a wonderful opportunity, right?
  • 01:22 You want divergences between fundamentals
  • 01:25 and stock prices.
  • 01:26 Well, but how much further do we need to see some of those
  • 01:29 prices come down to kind of match?
  • 01:31 I guess the appetite people would have, they would look at some of these stocks and say they're a bargain because we had
  • 01:35 a pretty massive sell off in some of these names and names that you know are going to rebound, right?
  • 01:39 Yes, that's true.
  • 01:41 But the over if the overall market, it is weak, it's going to pull the big names down.
  • 01:46 In my experience, and you know, this as well as I do, is when people sell, they sell their winners, right?
  • 01:52 So I wouldn't, you know, you're getting a bounce in the AI names,
  • 01:56 but I think you're going to get another
  • 01:58 a better shot at them
  • 01:59 in maybe into October into the election.
  • 02:02 It's just we're seeing a kind of a traditional,
  • 02:05 you know, kind of September, which I find incredible because if everyone knew it was going to happen, how come it's happening?
  • 02:10 I know.
  • 02:10 And
  • 02:11 it gets to the idea too of like we talk about market catalyst and there's plenty.
  • 02:14 We mentioned the election, obviously have a big Fed meeting
  • 02:17 next week.
  • 02:18 And I'm wondering how much that Fed meeting could potentially reshape the market narrative.
  • 02:22 I know everyone kind of knows what's coming or they think they know what's coming,
  • 02:25 but there's still a communication aspect to that meeting that Jay Powell is going to have to navigate that, you know, the market is going to hinge on.
  • 02:32 Explicitly true.
  • 02:34 That's true.
  • 02:34 But if I had to think about what would be the catalyst for further weakness, it's maybe continued
  • 02:39 softer economic data that creates that anxiety or maybe it's not a soft landing.
  • 02:44 Maybe it's more of a hard landing.
  • 02:45 I don't think this,
  • 02:47 the inflation number that on Wednesday is going to 'cause, you know,
  • 02:50 you know, a weakness.
  • 02:51 I suspect it's going to be further kind of weakening the economy creates that jitters.
  • 02:56 But I don't think the Fed,
  • 02:57 you know, this is a good thing.
  • 02:59 They're
  • 02:59 easing off on rates.
  • 03:00 That's going to help kind of risk, risk assets in general.
  • 03:04 So you could get continued bounce this week.
  • 03:06 What do you think neutral is and how does that matter for Someone Like You?
  • 03:09 Neutral rate for the Fed?
  • 03:11 Well, what
  • 03:12 it matters that the risk free rate is coming down and that's really important to consider because if you think about kind of high growth stocks or small cash stocks or anything that has high growth rates and then you discount back to come up with a current valuation.
  • 03:26 Well, the risk free rate went up,
  • 03:28 you know, and that hurt
  • 03:30 kind of present value on assets.
  • 03:32 Now if the discount,
  • 03:33 the risk free rates coming down,
  • 03:35 that'll help.
  • 03:36 So I expect small caps to bounce, high growth stocks to bounce.
  • 03:40 Anything where you're looking at a few years to figure out what they're going to earn
  • 03:44 that's going to take the the pressure off those stocks at least short term.
  • 03:48 Do you think all of this comes with a pickup in volatility that kind of stays?
  • 03:52 Yeah, I mean, you always get, you know, what's interesting is at the beginning of the year I was saying, well, you know,
  • 03:57 these two candidates are running.
  • 03:58 We know what we have.
  • 03:59 So I think actually it'll be less volatility this year.
  • 04:02 Now you now that we don't have both candidates been president, it creates more volatility.
  • 04:08 That's the norm.
  • 04:09 So yeah, I think there will be more volatility, which is not a commentary on one candidate or the other.
  • 04:14 It's just that one candidate is unproven and one we know and that creates more volatility.
  • 04:18 So that's another thing that could cause some weakness.
  • 04:21 So does this though get us to to that potential for a rally scenario at the end of the year, the idea that once we get to the election, we know the results
  • 04:29 that investors in theory and by that time you'll have a Fed that in theory will have also laid out its road map to a certain extent.
  • 04:35 I mean, I know that's not at all clear, but at least you have clarity.
  • 04:38 Well, that's exactly right.
  • 04:39 And that's my point about where the fundamentals diverge because what's fascinating here
  • 04:44 is at the end of the year, we're the market is going to be priced off next year's earnest
  • 04:49 and there's two types of earnings estimates.
  • 04:51 There's a top down from Wall Street and there's a bottoms up that are all the analysts
  • 04:55 and what they come to.
  • 04:56 Well, that number for next year has been going up.
  • 04:59 MMM.
  • 05:00 Up,
  • 05:01 so that means companies are guiding
  • 05:04 analysts to a Goodyear
  • 05:06 and that's that's very, very healthy.
  • 05:08 And that divergent between the bottoms up
  • 05:11 and the top down is very wide the way it was last year at this time.
  • 05:15 And what happened is Wall Street strategist had to kind of chase the market higher into fourth quarter.
  • 05:20 And I think that's going to happen again because,
  • 05:23 you know, when I talk to companies, when we listen to companies, they say business is pretty good for the most part cumulatively.
  • 05:29 So I think once we get through this macro and people say, OK,
  • 05:32 what are these companies going to earn?
  • 05:33 How are things looking next year?
  • 05:35 Oh, it's pretty good.
  • 05:36 And that's when we get back to the micro at that, you know, the the earnings.
  • 05:40 And that's when I think you get a rally.
  • 05:42 Will, will the earnings though, hold up?
  • 05:43 I mean, we're heading into antheria.
  • 05:45 Heading into what earnings season, I guess, what in about a month's time or so already?
  • 05:48 Exactly.
  • 05:49 Yeah, exactly.
  • 05:50 I know, I know it's it's already a shock, but
  • 05:52 if they were going to be weak, yeah, you would have heard by now companies would have already called.
  • 05:58 So I, I think called and said, yeah, you might want to lower that number a little bit.
  • 06:02 So I don't think that's going to happen
  • 06:04 and I don't hear that either.