>>Wednesday January 13, 2:57 pm Eastern Time
Morgan Stanley cuts back on stocks for cash
NEW YORK, Jan 13 (Reuters) - Morgan Stanley U.S. strategist Peter Canelo recommended cutting back on stocks held in the firm's model U.S. taxable balanced portfolio in favor of cash.
In a research note dated on Tuesday but released on Wednesday, Canelo lowered the equity allocation by five percentage points to 65 percent and raised cash to 15 percent. It kept its bond holdings at 20 percent.
Canelo said in the report he remains bullish but is concerned regarding ''the recent upsurge of stock prices in the face of rising bond yields, a weak U.S. dollar, excessive optimism, and growing speculation in Internet stocks.''
Canelo said in the report he expects the Dow Jones industrial average to top 10,000 to 10,500 in 1999. The Standard & Poor's 500 Index should reach 1,350 to 1,425 this year, Morgan Stanley said in a brief research note titled ''Taking some chips off the table.''
But some troubling issues are on the horizon, including sky high valuations. Stocks are now 16 percent overvalued, according to a Morgan Stanley dividend discount model, (yeah like these clowns aren't the biggest hypsters of all) and bond yields could keep moving higher.
A forecast for a softer dollar in the first half of 1999 could also hurt stocks, he said, due to the prolonged impeachment trial of the President and uncertainty surrounding Brazil which could pressure U.S. financial asset prices.
On the technical side, some price volume indicators have been suggesting that the market is temporarily overbought, he said. Market sentiment has also risen to very high levels, with Investor's Intelligence showing a 58 percent bullish reading, the highest level in nearly seven years.
Canelo also noted the froth in the Internet stocks, with the American Stock Exchange Internet index nearly tripling since October. ''The ultimate correction in these stocks was associated with a 7 percent pullback in the S&P500,'' he said in the note.<< |
