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The recent spate of good news that has bolstered the U.S. economic picture could bring a series of equity upgrades later this year, Morgan Stanley’s Equity Strategist Graham Secker says.”We acknowledge that the incoming data in the US, in particular, has been better than the market has been anticipating, which raises the probability that actual upgrades could follow at a later date,” Secker said.
Recent actions under taken by the European Central Bank, including the three-year long-term refinancing operation, have lowered the probability of a bear case in the region. Together, the news has equity investors more optimistic, Morgan says.
However, Secker and Morgan economists remain cautious on the stateside macro landscape, and continue to see slowing growth during the first half of 2012, before re-accelerating. The bank expects margins will trend down throughout the year, making it difficult for firms to breakout from a price-to-earnings ratio of 10.
“[Chief US Economist] Vincent Reinhart believes that the growth the US economy enjoyed towards the end of last year is unsustainable and expects GDP growth to slow to around 2.2% in 1Q,” Secker said. “One feature of the US economy in 2H last year was a noticeable fall in the household savings rate, which is unsustainable in the longer term. Post a 1.8% rise in 3Q, our economists’ tracking estimate for 4Q GDP growth is 2.7%