, shoving the MSCI World Index higher by more than 5 per cent. But by Friday morning, prominent strategists were falling all over themselves to warn investors not to chase the rally.
More importantly, the economic effects of monetary tightening are felt with a lag of between six and 18 months, so the previous rate hikes are only now starting to slow economic growth. Morgan Stanley believes profit growth is set to slow as a result and stock prices have yet to price this in. “The impact of an economic slowdown on earnings - when both volumes and pricing power wane - has not yet been absorbed or reflected in forward estimates,” Ms. Shalett wrote.
BofA Securities U.S. quantitative strategist Savita Subramanian also has concerns about profit growth. She wrote that “if inflation is cooling because of waning demand , earnings cuts will likely deepen.”