Morgan Stanley warns Fed under Warsh won't rescue investors as liquidity tightens

Macro
โดย MarketWatch·Read original
Summary · why it matters

Morgan Stanley strategists warn that the Federal Reserve under Kevin Warsh will not rescue investors as liquidity tightens and earnings revisions slow, setting up a major test for the stock market. The strategists, led by Mike Wilson, argue that Warsh's nomination was the right choice to fortify market credibility, evidenced by a 40% widening in the S&P 500-to-gold ratio since his nomination. They highlight that the path on liquidity is already tightening, with the Fed reducing its reserve-management program from $40 billion per month to $10 billion and Treasury buybacks curtailed by about 50%, while lending growth accelerates. This liquidity squeeze, combined with slowing upward earnings revisions, could test Warsh's commitment to taking short-term pain for longer-term goals in the coming weeks. The strategists believe liquidity remains a greater near-term risk to equities than fears of rate hikes to fight inflation.

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