As recession fears calm, a Morgan Stanley managing director explains why we're only in the 'first inning' of another leg up for the record-setting stock market

FILE - In this Nov. 7, 2019, file photo John Panin, center, works with fellow traders on the floor of the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EST on Friday, Nov 15. (AP Photo/Richard Drew, File)

Associated Press

  • Recession warnings are fading from their summer peaks, and stocks are set for another run-up as investors rush to participate in another rally, Morgan Stanley senior portfolio manager Andrew Slimmon said in an interview.
  • The volatility that previously came from trade war headlines has dulled, and Wall Street "has finally keyed into what's going on," he said.
  • Slimmon pointed to recent years as precedent for how the S&P 500 performs after a negative year.
  • The index saw two years of accelerating growth following 2011 and 2015 slumps, and Slimmon noted the market's performance through 2019 has matched the pattern.
  • However, Slimmon is less optimistic beyond year-end. He says the S&P 500's strong returns this year could cap upside in 2020, while multiple factors point to a possible recession in 2021.
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Recession fears are cooling from their summer highs, and stocks are poised for another run-up as the historic expansion continues, according to Morgan Stanley Senior Portfolio Manager Andrew Slimmon.

A slew of ingredients, including third-quarter earnings, trade war optimism, and positive economic data recently drove new records for the three major US stock indexes. Many investors who were holding less volatile assets now fear they could miss out on the market's next rally, and their trades are playing a big role in sending stocks higher, Slimmon said Advertisement

"The buying has only begun. We're in the first inning of capitulation back in the market," Slimmon said in a phone interview.

The prospect of a partial trade deal has also eased one of the most significant downward pressures on the stock market, the portfolio manager said. The volatility that came with every minor trade-deal headline has dulled, and Wall Street isn't as prone to sell in the wake of a negative headline, Slimmon said.

"It's all about the uncertainty. If tariffs have peaked, I think that removes some uncertainty, and that will help with a manufacturing rebound," he noted. "I think the market has finally keyed into what's going on."

The portfolio manager pointed to slumps in 2011 and 2015 as precedent for what he expects to happen in coming years. The S&P 500 index contracted over both years before posting multi-year rallies, and Slimmon expects the slump in 2018 will see a similar pattern before stocks turn bearish.

Though last year saw an "artificial low" from a late-December tumble, Slimmon still thinks 2018 serves as a "pause year" before recession worries are rejected and markets surge.