Once the worst performer on Wall Street, cash now looks like the best asset to own, says Morgan Stanley

Equity sellers are poised to pick up where they left off on Friday as the market appears to be waking up from its August slumber with a vengeance.

As Goldman Sach’s chief US equity strategist David Kostin told clients after the S&P 500 SPX,
-1.29%
It took just 17 weeks to reach its year-end target of 4,300, “upside looks limited while downside risks loom.” His concern is that we could be walking into a 2000 trap, where the market declines even after the hike stops if the US enters a recession.

This brings us to our point call of the day from Morgan Stanley strategist Andrew Sheets, who says investors should consider cash as a viable investment strategy, even if it hasn’t looked like such a profitable proposition in the past.

“Conserving cash…has been an explicitly defensive decision for much of the past 12 years. It naturally offered a worse return than anything else in the market,” Sheets told clients in the bank’s Sunday note. That strategy also proved costly, with the dollar underperforming both the S&P 500 SPX,
-1.29%
and the 10-year US Treasury note TMUBMUSD10Y,
2.982%
between 2010 and 2020 (with the exception of 2013 and 2018), he added.

Bloomberg, Morgan Stanley Research

“But the idea that holding cash means paying for insurance is no longer accurate,” said Sheets, who notes that 6-month U.S. Treasuries TMUBMUSD06M,
3.144%
yields (3.1%) are the highest since late 2007, offering 157 basis points more than S&P 500 dividends, 21 basis points more than 10-year Treasurys TMUBMUSD10Y,
2.982%,
and just 60 basis points below the overall US AGG bond index,
-0.70%.

“For US dollar investors, cash has ceased to be a significant impact on a portfolio’s current performance,” he said. Even keeping cash in Europe, which used to be extremely expensive, is no longer, as the German 6-month bill TMBMBDE-06M,
0.325%
Returns are positive for the first time since 2014.

Streets said that on a cross-asset basis, US dollar cash offers high current yield, liquidity and better 12-month total return than Morgan Stanley’s implied forecasts for US equities, US Treasuries, investment grade and high-yield credit — ” with much less variability.”

That’s why Morgan Stanley’s Core Optimized Fixed Income Portfolios are overweight short-term fixed income, he said. Against other currencies, the dollar is also holding up, and the bank’s FX experts see more of that strength ahead, especially against the euro EURUSD.
-0.39%,
which once again took advantage of the rate on Monday as concerns over winter fuel shortages in Europe grow.

The market

ES00 Stock Futures,
-1.22%

YM00,
-0.98%

NQ00,
-1.63%
slide south, with TMUBMUSD10Y bond yields,
2.982%

TMUBMUSD02Y,
3.271%
reflecting a cautious mood and CL.1 oil prices,
-0.46%

BRN00,
-0.51%
under pressure. Investors continue to pressure the dollar DXY,
+0.22%
higher. Elsewhere, it was a volatile day in Asian and European shares SXXP,
-0.83%
they are under pressure.

The hum

Among the data and events this week, we’ll get PMI numbers, second-quarter GDP, the Fed’s favorite inflation gauge, and the central bank’s Jackson Hole meeting, with Chairman Jerome Powell set to speak on Friday morning.

On the meme-stock beat, AMC Entertainment AMC,
-6.58%
retreats ahead of the start of trading for preferred equity units, or ApesL, and London-based Cineworld CINE;
-26.25%
confirmed that it is considering filing for bankruptcy in the US. Stock up on fellow meme, Bed Bath & Beyond BBBY,
-40.54%,
also falls.

CEO Elon Musk stated that Tesla TSLA,
-2.05%
will raise the price of the “Full Self-Driving” feature to $15,000.

Join CVS CVS,
+0.40%,
Amazon AMZN,
-2.86%
reportedly among bidders for healthcare company Signify Health SGFY;
-2.44%.

China’s central bank cut its key lending rate, a move aimed at boosting its faltering property market. Meanwhile, power cuts in the drought-stricken southwest, affecting industrial companies and Tesla in Shanghai, have been extended.

Retail and tech names to report this week, with Zoom Video ZM,
-3.57%
and Palo Alto Networks PANW,
-0.84%
after close on Monday. Macy’s M,
-4.53%,
Dick’s Sporting Goods DKS,
-1.26%,
Dollar Tree DLTR,
-0.22%
and the dollar DG General,
-1.47%,
Peloton PTON,
-7.50%,
Nvidia NVDA,
-4.92%,
Salesforce CRM,
-2.21%
and Marvell MRVL,
-2.58%
among other notables.

An Apple AAPL Group,
-1.51%
Workers are reportedly objecting to a return-to-office order for next month.

Fans rushing to watch HBO’s “Game of Thrones” prequel “House of the Dragon,” which has a $100 million campaign behind it, sent the app crashing.

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The chart

RBC Capital’s chief U.S. equity strategist Lori Calvasina argues that stocks can and have made significant bottoms even amid forecasts of falling earnings, with her chart below showing those moments in history. While Calvasina remains concerned that possible further downward moves to 2022 and 2023 EPS forecasts could lead to a more volatile stock market, he does not believe this will lead to a new low for the shares.

RBC US Equity Strategy, S&P Capital IQ/ClariFI, CIQ estimates

Top indicators

These were the most searched indices on MarketWatch as of 6 am. eastern time:

Heart

Security name

AMC,
-6.58%

AMC Entertainment

BBBY,
-40.54%

Bed Bath & Beyond

GM,
-3.80%

GameStop

TSLA,
-2.05%

Tesla

GCT,
+205.99%

GigaCloud technology

AAPL,
-1.51%

apple

NIO,
-4.32%

NIO

END,
-1.40%

Endo International

AMZN,
-2.86%

Amazon

BBY,
-3.51%

Better buy

Random readings

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