Morgan Stanley’s Sheets Goes All-In on V-Shaped Recovery Trades

A famous Wall Street bear-turned-bull is urging clients to double down on V-shaped economic bets, even as talks on fresh stimulus collapse.

Spurred by conviction on reflation, Andrew Sheets is bullish on small-cap stocks and recommends selling defensive trades from technology firms to long-dated Treasuries.

With investors already hedged for election-related volatility, Morgan Stanley’s chief of cross-asset strategy says the market rally has legs and more policy stimulus is coming soon enough.

“The glass half-full view of stimulus talks is if you don’t get it today you’ll get it tomorrow from whomever wins the election,” Sheets said in an interview. “This V-shaped recovery is still intact.”

His conviction that growth will continue unabated is in contrast with other strategists who say the U.S. is facing a multitude of risks. Lawmakers have been deadlocked for weeks on the details of a stimulus package and President Donald Trump surprised allies with a unilateral call on Tuesday to halt talks on a deal.

Sheets’s recommendations are mirrored in hedge funds positioned ever more aggressively for a steeper U.S. yield curve, often seen as a bet on reflation. The latest data shows speculative net short positions in long bond futures have hit a record, while net long positions on 10-year Treasuries have climbed to their highest since October 2017.