Morgan Stanley stated in its latest report that investors should increase their investment in defensive stocks such as essential consumer goods and utilities, as the latest data sends mixed signals to the economy.
Analysts led by Michael Wilson, Chief Investment Officer of Morgan Stanley, stated in their report that recent macroeconomic data suggests a soft landing or no landing for the US economy, and everyone is now paying attention to the upcoming inflation report to be released on May 15th.
Analysts wrote, "The April CPI released on May 15th is the next important macro event that will provide information on the direction of monetary policy and market pricing for this path."
"As usual, considering the impact of price trends on investor sentiment in an uncertain macro environment, the market response after the release of this data may be more important than the data itself," they added.
Wilson emphasized that the recently released employment cost index, ISM manufacturing and service sector index price sub indices were stronger than expected, while non farm employment data, World Federation of Large Enterprises Consumer Confidence Index, and ISM overall data were weaker than expected.
Based on these macro data, he suggests choosing strong cyclical stocks when the economy is not landing, and high-quality growth stocks when the economy is soft landing.
"If business activity indicators further slow down, investors can even consider increasing their holdings in defensive stocks such as utilities and essential goods," he added.
He further added that these sectors provide more defensive investment portfolios as a hedge against uncertain/unpredictable macro data. Furthermore, Wilson's research team has found that many companies are increasingly focusing on providing "value" to customers when preparing for reduced consumer spending.
The Federal Reserve is in a dilemma
Regarding last week's Federal Reserve meeting, analysts commented that it sent a "contradictory" signal. They wrote that due to recent inflation data, Federal Reserve Chairman Powell has shown less certainty about the timing of the first rate cut, but he firmly denies the idea of raising interest rates next.
At the press conference after last week's interest rate meeting, when asked when interest rates could be lowered, Powell replied that he didn't know either.
"So far this year, the data has not given us confidence in lowering interest rates. Inflation data has exceeded expectations, and the rate cut may need to wait longer than previously expected."
But for market speculation about interest rate hikes, Powell's answer is: the Federal Reserve needs to see convincing evidence that its policy stance is not enough to bring inflation down to 2%.