Forget a “soft landing.” Morgan Stanley thinks stocks are positioning for economic growth to stay robust. Strategist Michael Wilson said in a note Monday that the market is positioning for a “no landing” scenario given the broader participation seen in the S & P 500’s run to record highs recently. A no landing scenario means the economy will continue chugging along despite higher Federal Reserve rates. A soft landing points to a slight slowdown before the Fed cuts rates. “Leadership within the equity market continues to broaden as evidenced by the strength of our composite breadth measure. This broadening is being led by cyclical industries (Energy, Materials, and Industrials), which is supportive of the notion that the equity market is beginning to process a better growth environment,” Wilson wrote. Indeed, non-tech parts of the market are performing well this year. Energy is the second best-performing S & P 500 sector during that time, up 16%. Industrials and materials are up 10% and 8%, respectively. This market broadening outside of technology stocks comes as crude prices reach levels not seen since October. On top of that, the ISM manufacturing PMI reached expansion territory for the first time in more than a year. How to play it Wilson reiterated his overweight stance on energy, noting it has “fundamental and commodity support.” He also highlighted the outperformance in broader cyclical stocks, which are closely tied to the economy. “While cyclically sensitive stocks and sectors have started to outperform, quality remains a key attribute for the leaders,” he said. “We think this combination of quality and cyclical factors makes sense in the context of what is still a later cycle rather than an early cycle reacceleration in growth.” To be sure, Wilson still has a 4,500 S & P 500 target for 2024 , the second lowest on CNBC Pro’s Market Strategist Survey . That target implies downside of 13.5% from Friday’s close.
Morgan Stanley says stocks are pricing in a ‘no landing’ scenario. How to play it
Apr 8, 2024
