LIVE MARKETS-Ignore market breadth at your own peril

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

IGNORE MARKET BREADTH AT YOUR OWN PERIL

December has seen one of the widest disconnects between U.S. stock markets running near peak levels and the breadth of stocks participating in the rally -- an "unusual anomaly" which Morgan Stanley says may be risky to ignore.

"Ignoring breadth is usually a bad idea," writes Morgan Stanley's CIO Michael Wilson in his last Sunday note of 2024.

Wilson says current trends in market breadth may be anticipating the possibility the Federal Reserve might not be as accommodative as markets were expecting.

A growing focus on price momentum and quality stocks, as well as the rising popularity of passive investments strategies have contributed to the extreme concentration in many equity markets, not just in the U.S., he says.

For now, Wilson advises investors to "stay up the quality curve". He warns, however, that any liquidity tightening next year could normalise the anomaly between breadth and price, which could impact some parts of the market.

"Based on the reset in stock prices this past week, expensive/unprofitable growth stocks and low-quality cyclicals appear to be the most vulnerable to potentially higher-for-longer interest rates and less liquidity...", he says.

(Danilo Masoni)

*****

EARLIER ON LIVE MARKETS

STOXX UP, NO XMAS CHEER FOR UK HOMEBUILDERS CLICK HERE

EUROPE BEFORE THE BELL: FESTIVE TRADING CLICK HERE