Morgan Stanley's Shalett Says Market Shows Signs of "Fragility"
Comment of the Day

March 30 2021

Commentary by Eoin Treacy

Morgan Stanley's Shalett Says Market Shows Signs of "Fragility"

This note by Steve Dickson and Jonathan Ferro for Bloomberg may be of interest to subscribers. Here it is in full:

The Federal Reserve’s policy of keeping its “foot on the accelerator” to boost the economy has left the market showing signs of “fragility,” according to Lisa Shalett, Morgan Stanley’s chief investment officer for the wealth unit.

Speaking in a Bloomberg Television interview, Shalett also says:

Fallout from the implosion of Archegos Capital Management doesn’t threaten the financial system. “This, unlike some other issues, is not of an order of magnitude where there’s systemic risk,” Shalett says

Fed policy makers are making a bet that the liquidity being pumped into the financial system is more important for the economy than the “financial accidents or bubbles” that have popped up as a result, she says

“It’s time for investors to retool portfolios,” she says, arguing that the shift should be in favor of active management and shorter duration. Economic growth will be “much stronger” than it’s been, and that’s good for cyclicals and good for the labor market, but creates headwinds for the bond market and for stock multiples, she says

Eoin Treacy's view

The only real question is what will need to happen for the Federal Reserve and other central banks to arrest the decline in bond prices. Until that happens there will be increasing stress on leveraged trades and companies.

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