Too early to go all in on stocks: Morgan Stanley

Investing.com -- Morgan Stanley told investors in a note Monday that it is too early to go all in on stocks, citing unresolved trade tensions, softer earnings momentum, and tight liquidity conditions.

In its latest Weekly Warm-up, the bank reiterated that its “rolling recovery/early cycle thesis remains intact over the next 6-12 months.”

However, analysts warned that it is “important to see clearer trade de-escalation from both sides, stability in EPS revisions, and more ample liquidity before declaring the all-clear on the risk of a further near-term correction.”

Morgan Stanley noted that “volatility remained with us last week and quality outperformed,” with the VIX touching its highest level since April.

The firm said its policy strategists “ultimately see a narrow trade deal coming together around the APEC meeting,” but added that “execution risks on this front exist.”

On corporate earnings, the analysts remarked that they continue to see “earnings revisions breadth pull back from its historic rise since April,” though this is “very much in line with seasonal trends.”

The S&P 500, they added, is fairly valued based on where ERB sits today.

Morgan Stanley stated that its rolling recovery thesis coupled with the seasonal pattern suggest this is a “temporary pause in revisions breadth upside ahead of the next leg higher.”

The firm also described the current market as a “historically opportunistic stock-picking environment,” noting that “stock specific risk has seen a significant rise in recent months.”

“We think it’s important to see follow through here from both sides,” Morgan Stanley said, “before declaring the all-clear.”

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