Morgan Stanley sees potential for a late cycle US equities rally, similar to 2019

<p>A note on Monday from Morgan Stanley strategist Mike Wilson. He has been bearish through 2023 but sees potential for a late cycle rally now. He says current conditions look similar to 2019, when the S&amp;P 500 rose 29%
</p><ul><li>"In our view, the positive policy impact has been supported by a very strong fiscal impulse, a still supportive global liquidity backdrop and optimism that the Fed can now transition to easier monetary policy given the falling inflation data" </li><li>"The latest example of such a period occurred in 2019, but for somewhat different reasons – the Fed definitively paused and then cut rates and the Fed's balance sheet began to expand toward the end of the year… These developments fostered a robust rally in equities that was driven almost exclusively by multiple and not earnings, as has been the case this year" </li><li>"Both then and now, mega cap tech has led and growth has outperformed value as equity market internals process a path to easier monetary policy, in particular."
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"The 2019 analogy, in and of itself, suggests more index level upside from here, though we'd note that the Fed was already cutting rates for a good portion of 2019, and the market multiple is already close to 1 turn higher than where it peaked during that period," </li><li>

"Others suggest we are in a new cyclical upturn. While we're open-minded to this view eventually materializing, we'd like to see a broader swath of business cycle indicators inflect higher, breadth improve and front-end rates come down before adjusting our stance in this regard."</li></ul><p>—</p><p>You can see on the weekly candles the late rally in 2019. Once that year ended it turned ugly quickly for a little while. </p>

This article was written by Eamonn Sheridan at www.forexlive.com.