Morgan Stanley Investment Management’s Andrew Slimmon has been consistently bullish on stocks — even during periods of volatility. While he fears that a change in market conditions could cause “some sort of equity correction,” the senior portfolio manager believes it’s “clear sailing” for stocks for now. “One of the reasons I have bullish on equities since 2022 has been on how inflation is measured,” he told CNBC last week, as he noted that inflation is measured on a monthly, year-on-year basis. Given the “sky high” inflation numbers in 2022 and 2023, Slimmon said, it’s “only natural” that inflation would be on a downward trajectory as the year-on-year comparisons were “relatively easy.” That has allowed the U.S. Federal Reserve to pivot to a “less hawkish” stance, which the stock market has welcomed, he said. Last week, the April consumer price index report in the U.S. showed that inflation eased slightly for the month. On a 12-month basis, however, the CPI rose by 3.4%, in line with expectations. Markets reacted positively after the CPI release, with futures tied to major stock indexes rallying and Treasury yields tumbling. Futures traders raised the implied probability that the Federal Reserve would start cutting interest rates in September. “The problem is, as we get into May number, June numbers, July numbers of last year, those CPI numbers really came down quite a bit,” Slimmon told CNBC’s ” Street Signs Asia. ” “So the year over year comparisons are going to get much tougher, very, very near in the future.” “So I’m worried that we could have a realization that the CPI, the trajectory is no longer down, and it’s a little stickier,” Slimmon said. “I think that’s when you get kind of a correction. That’s why I believe the mark will be higher by year end, I wouldn’t be surprised you get a more substantial correction.” For now, however, the coast is clear with declining inflation and good earnings reports, said Slimmon. Growth and value names “I think it will make sense to get a little more defensive going into the summer but it’s too early for that,” he said. “Stick with a balance of growth and value names.” Netflix and Amazon are his growth picks, and United Rentals and Waste Management are his value picks. “When you think about Netflix, Amazon, you’re talking about two [companies] that give a lot of value to their customers for a relatively reasonable price,” Slimmon said. On Netflix, he said there are “plenty of places that they can expand beyond their dominance.” “I bet on smart management,” he added. — CNBC’s Jeff Cox contributed to this report.
