Morgan Stanley Strategists Urge Investor Restraint, Caution
Monday, March 12, 2001 3:10PM EST NEW YORK -- In a switch from Wall Street's virtual chorus of buy recommendations - even as the market has been tumbling - the top guns at Morgan Stanley Dean Witter banded together to urge restraint and caution. The firm's main market watchers, including Barton Biggs, managing director of global strategy, made their sentiments known in a note to clients Monday morning before stocks opened. Given the way the day has shaped up, with both the Dow Jones Industrial Average and Nasdaq Composite Index plunging, their comments looked prescient. At the very least, the statements are a change from the mantra at many other big Wall Street firms, which have been telling investors to get back into stocks aggressively. That includes technology shares - while the Nasdaq was marking successively lower closes. 'I am increasingly convinced these breaks by the Nasdaq will weaken the economy further and eventually drag down cyclical groups,' said Biggs. 'I worry that the Federal Reserve is behind the curve (in reducing interest rates) and falling further back all the time.' The market is 'not yet seeing the trading characteristics of a bottom,' added Byron Wein, Morgan Stanley's chief U.S. investment strategist. Stocks may be a bit undervalued right now, but they could see more selling before turning up, Wein said. This is especially true of technology stocks. Peter Canelo, the firm's U.S. strategist, urges caution going forward. 'The problem that technology is facing is proving to be more than an inventory correction and relates to cutbacks in capital spending,' he said. The firm's economists also offer dour views. Markets aren't stabilizing because there is still so much uncertainty, they said. 'This is the first recession of the Information Age,' said Stephen Roach, director of global economic analysis. 'As a result, both the speed and cross- border implications of cyclical adjustments are in uncharted territory.' On the home front, consumer spending is still due for a downturn, which means soft conditions could persist. 'Consumers seem to be trying to defend their lifestyles with extra borrowing,' said Richard Berner, chief U.S. economist. 'If so, they are living on borrowed time.' For investors that want to be in stocks, follow earnings revisions, Canelo says. Sectors that don't see waves of downward revisions 'should outperform going forward,' he said. One positive note: Conditions aren't permanent, Morgan Stanley feels. 'As long as the Fed continues to cut rates, the market will be higher in the next six to 12 months,' Canelo said. Banks, consumer cyclical and healthcare stocks are among the handful of groups the Morgan Stanley strategists recommend taking a look at. |
