Morgan Stanley Wealth Management warns that investors are failing to connect the dots between these trends and the yield curve's recession signal.
This inversion, now just under two weeks old, marks the longest stretch since 2007. Inversions that lasted for more than one month served as accurate precursors of all seven recessions that occurred during the last 50 years, according to Morgan Stanley Wealth Management.
"Unlike in March, we now see odds of a protracted inversion as high and have become increasingly cautious, especially since the equity market continues to shrug off weak economic data and the inversion as transitory," said Lisa Shalett, the chief investment officer of Morgan Stanley Wealth Management, in a recent note to clients.
With these trends all pointing to trouble ahead, Shalett's conclusion was that equity investors were relatively complacent, even after the market's decline in May. In her view, they're counting too heavily on the Federal Reserve to swoop in andOn the other hand, bond-market investors are pricing in a recession more aggressively, starting with the longest yield-curve inversion since 2007.
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