Aug 14 2024: Morgan Stanley’s European equity strategists have reported that their Market Sentiment Indicator (MSI) has issued a “buy signal” for the first time since Q4 2023.
Historically, European equities have shown positive returns about 70% of the time over two weeks, one month, and three months following a similar “buy signal” from low MSI levels, according to the strategists.
Their investor survey suggests that stocks related to “AI winners” and those sensitive to interest rates may be among the first to see increased buying interest.
The MSI integrates data from surveys, positioning, volatility, and momentum to gauge and quantify market stress and sentiment.
The strategists noted, “We have been closely monitoring the MSI as it has proven effective for identifying more sustained technical signals in European equities.”
They draw comparisons between the current growth scare and a similar scenario during the mid-1990s soft landing, particularly late 1995 and early 1996. They observed that, like today, “Tech Titans” then were the first to face and recover from the growth scare, and Europe’s rate-sensitive stocks also performed well during and after that period.
The strategists added, “In the near term, the busy and somewhat unpredictable US economic data calendar may continue to create market volatility.”
While they anticipate that the soft landing will ultimately be confirmed, they acknowledge that this may take time. Nonetheless, they assert that European fundamentals remain solid.
In a separate update, Morgan Stanley reported that its global MSI indicator has turned positive, signaling a shift towards a “risk-on” stance after remaining neutral since January. Historically, such a shift has been linked to above-average one-week returns for global equities.
