When Wall Street is telling you to Sell Stocks…

I thought it was interesting to see Morgan Stanley put out a piece telling people to sell stocks just as the monster rally we’ve had is beginning to fade.

From Bloomberg,

Investors should sell U.S. stocks following the steepest rally since the 1930s because earnings are likely to keep weakening, according to Morgan Stanley.

The Standard & Poor’s 500 Index advanced 21 percent in the past 14 trading days, the most since 1938, according to data compiled by New York-based S&P analyst Howard Silverblatt. It closed at 815.94 last week, rebounding from the 12-year low of 676.53 reached on March 9.

“We cannot see large upside for the S&P 500 above the 825- 850 level,” Morgan Stanley U.S. equity strategist Jason Todd wrote in a report yesterday. “In the rush to buy a cyclical recovery, it seems earnings or valuation no longer matters. We would be comfortable with this view if the earnings trough was closer, but it is not.”

I find this peculiar because it goes against what I have come to expect from Wall Street analysts, which usually “sells” rallies like this as a way to generate excitement into equities.  In life when I see things that contradict what I believe to be the “norm” I usually step back and analyze them.

My thoughts:

1.  The more optimistic Zero Beta thinks perhaps Wall Street has actually hired analysts to analyze and may not follow the same rules as before.

2.  The more cynical Zero Beta thinks perhaps Wall Street Banks aren’t doing as much equity business in general and have tons of debt which they must move and therefore must maintain the “panic”

3.  Perhaps Wall Street is once again wrong and we are headed towards a monster summer rally on low volume followed by a fall retracement when supply hits the market again.

I’m not really sure what it means, if anything.  Just thought it was interested and figured I’d give my take  on it.  What do you think?

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