Wall Street to investors: Take risks, but play defense
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These days, there's a growing message from Wall Street: Take risks. But prepare to play defense.
As a global economic slowdown sets in, strategists sound increasingly cautious as they dig in for more volatility. The trade war, along with signs that the manufacturing decline is seeping into the services sector, has not eliminated the appetite for risk. But in some corners, it may be weakening.
"Persistent uncertainty from protectionist policies is denting corporate confidence and slowing business spending," the BlackRock Investment Institute said in its outlook for the fourth quarter. "Overall, we favor reducing risk amid the ongoing protectionist push."
BlackRock still expects "moderate" risk-taking to be rewarded, and says it maintains a favorable view of US stocks. But the asset manager also sees government bonds as "important portfolio stabilizers."
For a similar message, look to equity strategists at Morgan Stanley. "We have been recommending for the past several months that investors skew more defensively in their portfolios," they reminded clients on Monday.
Following a choppy week, there's plenty of agreement that more volatility lies ahead.
JPMorgan's John Normand thinks the current market correction is only half complete, but will ultimately be less severe than the drawback experienced at the end of 2018.
From Normand's team, in a recent note to clients: "A recession is avoidable but recurring drawdowns are not, given the complexities of the US-China conflict, President Trump's impulsiveness and the scope for miscalculation when wielding untested policy tools like tariffs, export bans and capital flow restrictions."
Of course, there are still some optimists.
"Despite the ebbs and flows of this headline-driven market and recent bouts of performance volatility, we continue to believe the underlying fundamental and macroeconomic environment remains supportive of US stocks," Brian Belski, chief investment strategist at BMO Capital Markets, said in a note last week.
Even so, he doesn't expect the push higher to be smooth.
"With that said, we do not expect the relative calm exhibited by US stocks in September to persist through the end of the year," Belski wrote.
The global economic slowdown is here to stay
Economists are digging in for a global slowdown.
The National Association for Business Economics said in a survey released Monday that US GDP growth for next year will drop below 2% for the first time since 2016, per my CNN Business colleague Anneken Tappe in New York. The consensus expectation is now at 1.8% growth, down from 2.1% in the last survey.
The 54 economists surveyed don't yet expect a recession, Anneken notes. But the dour forecast is the latest example that a slowdown is no longer an expectation. It's here now, and it's likely to stay.
Remember: The drawdown is global. German factory orders for August fell 0.6% compared to the previous month, according to data released Monday. That follows a decline of 2.1% in July.
Bank of America Merrill Lynch now expects 0% growth in the eurozone during the third quarter. And it "could get worse," according to the bank's economists.
The view: "The trade war, in the form of the Airbus vs. Boeing standoff, has arrived in Europe. China remains weak. The US looks wobbly. The UK is busy with Brexit. The spreading of German manufacturing weakness slowly turns from risk to reality.
... It is high time to discuss policy options. There aren't that many."
The NBA faces backlash in China ... and the US
Several Chinese businesses have suspended ties with the Houston Rockets after the American basketball team's general manager expressed support for Hong Kong's pro-democracy protests, my CNN Business colleague Laura He writes from Hong Kong.
A firestorm erupted in mainland China over the weekend after Daryl Morey posted an image on Twitter that read, "Fight for freedom, stand with Hong Kong." Since then, the state broadcaster and Tencent Sports have said they'll stop showing Rockets games. The Chinese Basketball Association said it would halt all cooperation with the team.
The NBA, which has gone out of its way to court fans in China, tried to defuse the situation, saying in a statement that Morey's post "does not represent the Rockets or the NBA." Alibaba executive Joe Tsai, who owns the Brooklyn Nets, stepped in to defend Chinese sovereignty while urging Chinese fans to "keep the faith" in the NBA.
Now the NBA is in hot water at home, too. "It's clear that the NBA is more interested in money than human rights," Republican Senator Rick Scott tweeted.
US consumer credit data arrives at 3 p.m. ET.
Coming tomorrow: The big data release is the US Producer Price Index.
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