23/10 Indices, page-38

Long positions are on the cards with some chop. If one wants to catch an impulse move and get in early then ride the chop.

AS YIELDS SURGE, CURB EQUITY OVERWEIGHTS, LOOK TO REAL ASSETS -MORGAN STANLEY (1335 EDT/1735 GMT)
The U.S. 10-Year Treasury yield US10Y crossing the 5% barrier and hitting 16-year highs continues to batter bond holders at a time when risk-aversion would ordinarily underpin prices.
As Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, sees it, sharp weakness in Treasuries reflects bond investors desire to be compensated for a growing list of risks, which now increasingly include geopolitical instability and fiscal spending demands, as the U.S. government already is grappling to finance its deficit.
According to Shalett, stocks have reflected some of the concerns around rising real rates, inflation, and term premiums. However, she says the reaction has been mild by historical standards, while valuations remain elevated at 18-19 times.
Developments out of Washington, Federal Reserve policy and the level of the U.S. Dollar and its role as a reserve currency are key factors for the market at this time.
"While many assume that some combination of Fed accommodation and debt monetization will ultimately provide clear sailing, we think it is at least worth considering that this time it could be different." writes Shalett in a note.
Therefore, given that Shalett says that foreigners account for 40% of U.S. debt auction volume, she believes it is critical to watch geopolitically-linked spending, how Treasury auctions go, and dollar strength as indicators of where that foreign demand stands.
Shalett believes it may be time to consider curbing large equity overweights to account for risks of a structurally higher U.S. cost of capital, while adding to real assets - including gold, commodities, infrastructure, energy transport and noncommerical real estate - as a portfolio hedge given "non-zero odds of stagflation."
(Terence **riel)