Morgan Stanley Issues Rare “Sell” Signal, Are You Prepared?


The Founder & Portfolio Manager Of Active Alts, Principal & Co-Manager Of The Advisorshares Ranger Equity Bear ETF

Morgan Stanley recently issued a rare sell signal on the U.S. market. Are you prepared?

As the chart below shows, Morgan Stanley’s composite market timing indicator has reached new highs, which is bearish for the markets. Previous major signals include 1990, 2000, and 2007, which all preceded dramatic declines in equity indexes.

S&P 500 Morgan Stanley market timing indicator

While the historical track record of the signal is impressive, current conditions in the market suggest that the next decline could be fierce.

Consider that U.S. households are fully invested in equities, and margin debt is exploding. Both are contrary indicators.

As the following chart illustrates, household equities as a percent of total financial assets have hit a new high of 36.5%.

Equities account for a record % of assets

This tops the previous highs of 29.7% in the late 1960s and 32.5% near the turn of this century that preceded negative 10-year annualized returns in the market.

Quite simply, households are loaded to the gills in equities. Their holdings are more than double that of 2009, which represented a generational buying opportunity in stocks. That cycle may be coming to an end.

Should the cycle be coming to an end, leverage will only add fuel to the fire. The amount of margin debt has exploded and in real dollars is outside the norm of historical ranges.

Real growth in margin debt is literally off the charts. The following charts, courtesy of Advisor Perspectives, show that real growth in margin debt has dramatically outpaced the rally in U.S. stocks over the past 12 years.

The trend has accelerated since the COVID lows were hit last year.

FINRA Margin Debt and S&p 500 real growth since 1997

Lastly, negative credit balances far exceed previously known bubbles.

Investor credit and the market

The unwind is likely to happen swiftly and with tremendous damage. Morgan Stanley is making a rare bearish call on the market.

Are you prepared?

Originally Posted on July 13, 2021 – Morgan Stanley Issues Rare “Sell” Signal, Are You Prepared?

Disclosure: Lamensdorf Market Timing Report

Lamensdorf Market Timing Report is a publication intended to give analytical research to the investment community. Lamensdorf Market Timing Report is not rendering investment advice based on investment portfolios and is not registered as an investment advisor in any jurisdiction. Information included in this report is derived from many sources believed to be reliable but no representation is made that it is accurate or complete, or that errors, if discovered, will be corrected. The authors of this report have not audited the financial statements of the companies discussed and do not represent that they are serving as independent public accountants with respect to them. They have not audited the statements and therefore do not express an opinion on them. The authors have also not conducted a thorough review of the financial statements as defined by standards established by the AICPA.

This report is not intended, and shall not constitute, and nothing herein should be construed as, an offer to sell or a solicitation of an offer to buy any securities referred to in this report, or a “buy” or “sell” recommendation. Rather, this research is intended to identify issues portfolio managers should be aware of for them to assess their own opinion of positive or negative potential. The LMTR newsletter is NOT affiliated with any ETF’s.

Active Alts is affiliated with Lamensdorf Market Timing Report. While LMTR uses charts from SentimenTrader, they do not have a financial arrangement with SentimenTrader.  Past performance is not indicative of future results.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Lamensdorf Market Timing Report and is being posted with permission from Lamensdorf Market Timing Report. The views expressed in this material are solely those of the author and/or Lamensdorf Market Timing Report and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Margin Trading

Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.

For additional information regarding margin loan rates, see