Morgan Stanley Strategist Sees “Multi-Year Bull Market”

From Bloomberg:

Now is a good time for investors to get into the stock market, as rising profits and a growing middle class power a “multi-year bull market,” particularly in the U.S. and emerging markets, according to Charles Reinhard, a global investment strategist at Morgan Stanley Smith Barney.

“We have a two-speed recovery — with emerging market countries growing at 6 percent, developed countries growing at 2 percent — and we have equities that are an extraordinary value,” Reinhard said today in New York at a presentation by the world’s largest brokerage, a joint venture between Morgan Stanley and Citigroup Inc. “What we think is powering this growth is simply good, old fashioned profit growth. Profits have leaped ahead, back to almost where they were, but the stock market has not done that yet.”

Global equities are poised to reach 30 percent profit growth this year or better and then taper off, Reinhard said. “If markets could just move with profit growth, most people would find that to be a pretty good experience.”

In eight of the last 10 times that the U.S. has pulled out of a recession, there has been a bull market lasting at least two years, according to Reinhard, who cited the two exceptions as the period during the Cuban Missile Crisis and the double-dip recession in the early 1980s.

“If we can avoid a geo-political provocation akin to the Cuban Missile Crisis, the odds go up,” he said. “A few months ago, people were worried about [a double-dip recession], but we have clearly veered off that path, too.”

Asia, Eastern Europe

The engines driving profit growth are the emerging market regions of China, South Asia, East Asia and Eastern Europe, which will account for about 93 percent of households that have middle class income worldwide, according to Morgan Stanley Smith Barney research. Emerging markets’ middle class makes up 56 percent of all households worldwide, the research said.

“This is going to have powerful implications because as people become a little bit wealthier they demand different things,” Reinhard said. “Their approach to food, their approach to fashion, their approach to travel. As people have a little bit of money, they’re curious. They want to see how other people live. Tourism is only going to get bigger.”

The firm is upbeat on the stock market because no “assassins,” or dangers to the market, are present, Reinhard said. Inflation at around 1 percent is not a concern right now, “irrational exuberance” is no longer in the stock market, and a looming recession is not ready to cut into profits, he said.

“Bull markets don’t die of old age, they die when they’re assassinated,” Reinhard said. “We should have a very good year ahead for equities.”

Posted by on November 10th, 2010 at 10:59 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.