Mike Wilson head of U.S. Strategy at Morgan Stanley thinks something has to give = either the risks to the recovery (COVID cases, election concerns, fiscal cliff) need to subside and the market broadens, or these risks will ultimately topple the winners, too.

He argues that current breadth is just unhealthy and therefore unsustainable = the most likely outcome is a 10% correction in the broader index led by the beneficiaries before the recovery and the *bull market continues led by Value.*

“Congress is now the critical player in driving money supply growth with the Fed fully committed to doing whatever it takes. This is very different from the post GFC era when aggressive monetary policy was unmet with a willing borrower and spender. We think this poses a greater likelihood for inflationary pressures to build. That’s actually a good thing for equities broadly because stocks tend to do well in rising inflationary environments, particularly when we are starting from such low levels. The problem may be that equity market leadership is skewed toward deflationary winners making any sudden surges in inflation quite disruptive to portfolios.

…In short, we view the current skew between the COVID beneficiaries and laggards as an unhealthy sign, and therefore unsustainable. We think the most likely outcome remains a 10 percent correction in the broader index led by the beneficiaries before the recovery and bull market continues.”