Goldman Sachs continues to be bullish: January will see hundreds of billions of dollars in incremental capital inflows.
There are two main reasons for Goldman's forecast:
One is that global equity inflows this year have exceeded those of the past 25 years combined, a situation that "will take a much bigger correction to change".
The second, and more important, reason is that January is typically when most funds allocate their money.
In each of the 24 years from 1996 to 2020, capital inflows in January exceeded those in the other 11 months of the year, accounting for 134% of total capital flows, while outflows in the other 11 months were 34%.
Private wealth managers around the world are now allocating more to equities and less to bonds, a trend Goldman sachs reckons will continue.
In contrast to Goldman's staunchly bullish stance, Morgan Stanley warned that the outlook for U.S. stocks was worse than most expected.
Fed tapering (fire) and slowing growth (ice) may play a song of ice and fire. Let's hope investors are fully aware of the risks of slower growth. The risks of a sustained cyclical downturn in the economy are as important to investors as external shocks.
Overall, Morgan Stanley thinks the impact of Fed tapering and slowing growth on U.S. stocks could be worse than most expect.
As a result, investors should guard their equity positions against speculative stocks, and high-tech stocks are vulnerable. Investors should focus on defensive assets with stable earnings, such as health care, REITs and consumer staples.
It believes the Fed is beginning "a very long process of removing monetary accommodation". At the same time, the strategist believes the Hawkish fed shift is still not widely recognized by the market, even though the most expensive basket of investment stocks, growth stocks, has started to suffer.
As markets and the Fed come to realize that inflation is not temporary, there could be further valuation killings.
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