A top Morgan Stanley strategist says the stock market remains in bullish territory but warns a wave of speculative trading could test its strength.
In a new CNBC interview, Andrew Slimmon, senior portfolio manager at Morgan Stanley, says the market’s resilience is underpinned by favorable monetary and fiscal policy.
But Slimmon notes that speculation in stocks in high-risk sectors is pointing to potential excess building beneath the surface.
“But I think it’s too premature to say this is 1999. But to be clear, that is the number one thing that worries me. I am worried about the speculative stocks are leading the charge…. So I love [October 10th] when the market pulled back, they got hit. That, to me, extends the bull market cycle. The more money that goes into these stocks, the more it worries me, the duration of the bull market.”
He says the latest enthusiasm for thematic plays like quantum computing and digital assets is characteristic of late-stage exuberance, even as underlying fundamentals remain solid.
“Quantum computing, nuclear stocks, flying cars, crypto, you know, you name it. It’s the losing, it’s the speculative ones.”
While signs of froth may be building, Slimmon highlights two major tailwinds that could push the market to greater heights.
“The Fed is cutting. That means, you know, monetary policy is friendly. And by the way, the One Big, Beautiful bill, there’s going to be a lot of tax savings next year. Fiscal policy is friendly too. Those are two very powerful things driving the market. Don’t overthink it, right? The one thing that hangs out there is this kind of feeding frenzy and speculative stocks. But other than that, I think it’s a very bullish backdrop.”
Slimmon adds that despite investor concerns about valuations, the current cycle still has room to run, given balanced sentiment and supportive policies.
“People say, ‘Well, the market’s expensive.’ And I say, ‘Well, what do you want? The market is moving into the fourth year of a bull market. You got fiscal multi-policy friendly, sentiment isn’t too high. I mean, you can’t have everything. Yeah, the market’s a little rich. But other than that, I think there are some very strong reasons to remain optimistic with the exception of these speculative stocks.”
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