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The Tell: Morgan Stanley tells investors to play defense as cycle indicator flashes ‘downturn’

Investors should brace for market turmoil over the next 12 months.

That’s the warning from Morgan Stanley’s cross-assets team, who says their cyclical indicator has flipped to “downturn” from “expansion,” a shift that has historically led to weaker returns for stocks and other risky assets, along with an elevated chance of a recession. In a note dated on Sunday, the bank advised market participants to go on the defensive, eschewing U.S. stocks for the safety of Treasurys and cash.

See: Can Trump’s trade tussle sink a chance at the longest economic expansion in history?

“With U.S. data still above-average but deteriorating, our cycle indicator has shifted out of ‘expansion’ to ‘downturn’ for the first time since 2007,” wrote Serena Tang, a cross-assets strategist, adding that its downturn phase indicates when the improvement in economic data has started to slow or weaken outright.

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