Welcome to Thoughts on the Market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategy for Morgan Stanley. Along with my colleagues bringing you a

variety of perspectives, I'll be talking about the latest trends in the financial

marketplace. It's Monday, June 1st at 10.30 a.m. in New York, so let's get after it.

While markets have exhibited a V-shaped recovery over the past few months.

Most investors we speak with remain skeptical we are in store for a V-shaped recovery in the economy.

According to the Chicago Mercantile Exchange, speculators have rarely been this short S&P 500 futures,

while our proprietary data suggests active equity managers continue to hold much lower levels of

risk in their portfolios than prior to the COVID-19 outbreak.

At the micro-level, active managers remain overweight large-cap high-quality growth or defensively

oriented stocks.

These are classic late cycle stocks that tend to do best at the end of an economic expansion.

Indeed, these kinds of stocks were the unequivocal market leaders last year as the economy was

edging ever closer towards a recession.

Interestingly, many of these late cycle stocks are also beneficiaries of the unique work-from-home

characteristics of this recession.

What this really means is that many late cycle stocks have maintained their positive price momentum characteristics for longer than they normally would.

More importantly, price momentum has become the most widely followed strategy for both passive and active managers.

As such, fighting momentum is a risky game for active equity managers that need to perform.

And in the current environment, it's made the natural transition away from late cycle stocks more difficult for equity managers to

embrace.

I'm a believer in price momentum strategies too, mainly because they are popular which makes them work.

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