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Morgan Stanley's Slimmon Warns of 'Frothy' Market, Advises Profit-Taking

Investors enjoying record highs may want to temper their enthusiasm, according to Andrew Slimmon, a senior portfolio manager at Morgan Stanley Investment Management. While acknowledging a potential short-term market rally extending into February, Slimmon expressed concerns about the current market leadership's long-term sustainability in a CNBC interview.

Slimmon's caution stems from his observation that the current market surge is fueled by what he calls "bubbly low-quality growth stocks," echoing a trend seen in 2021 that ended negatively for similar investments. He characterized the current market environment as "gotten too frothy in one group of stocks," signaling a likely rotation into other market segments.

"It's tough to put a stake in the ground and say it's over," Slimmon conceded regarding the current rally. However, he believes investors should consider securing gains from stocks that have experienced significant growth this year, with many up 50% or more.

This strategic profit-taking is crucial, he argues, because perfectly timing the market is impossible. The current momentum-driven market, he suggests, points to a future shift in investor preference. He urged investors to begin reallocating capital from these high-flying stocks into areas that have lagged.

Looking ahead, Slimmon suggested investors consider sectors poised for growth following a potential market adjustment. He cited Real Estate Investment Trusts (REITs) and China as examples of potentially attractive, more conservative investment opportunities.