Get defensive, inverted yield curve sending a message

Morgan Stanley believes the Federal Reserve statement last week was not what investors expected.

The Fed said which will begin reducing the bonds on its balance sheet in May along with also end the roll-off of Treasurys in September. Called quantitative tightening, This specific program is usually the unwinding of a decade-long program of stimulating financial markets through a monetary easing program. nevertheless, following the announcement, Wilson said the central bank “did not get the reaction they expected as the yield curve immediately inverted.”

“We think the ending of [quantitative tightening] is usually a rate cut along with also a Fed which is usually cutting is usually bearish for stocks,” Wilson said.

Wilson said which before the Fed’s announcement, which “seemed unlikely” which the central bank might have “a more dovish policy message.

“However, which’s exactly what they did when they effectively telegraphed with their dot plot there will be no more rate hikes This specific year along with also provided guidance they might end the balance sheet reduction by September,” Wilson said.

A few companies reported first quarter earnings last week along with also companies, such as FedEx, are citing growing concern over a global economic slowdown. Wilson said these early warnings mean investors should not bet on “another look through quarter,” where mixed earnings results kicked concern of an economic slowdown down the road.

To get defensive, Morgan Stanley recommended investor buy stocks from the utilities along with also consumer staples sectors, such as Procter & Gamble or NextEra Energy, while warning against consumer discretionary or technology stocks.