Morgan Stanley IM: The Soft-Landing Super Bowl: Here’s Our Playbook

• If we can make the analogy between economic data releases competing to create the narrative of the market and a football game, then last week was the Super Bowl.
• The winner? The side that supported a soft landing. In fact, Fed Chairman Jerome Powell delivered that message as such in his presser last Wednesday.
• Now what? The consensus is pushing the previous expectation for a softening of market prices from the first half of 2023 into the second half. This was the big change based on last week’s data.
• In simple terms, we’ve gone from a ‘‘dip, then rip” scenario to “rip, then dip” for market prices. Importantly, the consensus is not ceding an economic and market swoon at least at some point this year.
• We’ve been consistent about where we stand on this, believing investors are holding too much cash, essentially underinvested and vulnerable to a market rally. This provides a technical advantage for the market to overemphasize positive economic data and push prices higher.
• As we’ve said before, “risk-on” is a risk, and like any other risk needs to be hedged. The market is now vulnerable to chase prices higher.
• But it’s not just about the technicals. Fundamentals matter too. Last week’s economic data was a turning point for many to change their outlook.
• Remember too though that correlations across asset classes remain high, a risk that need to be addressed. As we like to say it’s better to be balanced than defensive, and portfolio construction is the key.

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