The risk of an economic slowdown now outweighs the risk of inflation, according to Morgan Stanley. At the mid-point of the year, stocks are near all-time highs, buoyed mostly by a handful of mega-cap technology stocks tied to the artificial intelligence trade. The S & P 500 has surged nearly 15% this year, having notched more than 30 record closes along the way.
To be sure, the Morgan Stanley strategist does not expect weak breadth to herald weak returns. But he does expect any market broadening will for now be restricted to high-quality, large-cap and defensive stocks, especially in the event of a slowdown that he expects is the most likely future scenario. "A growth scare that is substantial enough to turn bad economic data into bad news for equity multiples across the board," Wilson said.