Morgan Stanley CIO and Chief US Equity Strategist Mike Wilson believes the bottom for US stocks will be confirmed when a major event occurs.
In a new episode of Morgan Stanley’s Thoughts on the Market podcast, Wilson say that if investors further reduce their exposure to several popular investment positions, this would signal an end to the ongoing market correction.
“The S&P 500 rebounded last week from the 6,300 to 6,500 support range I highlighted. Can we retest those levels? Certainly, especially if rates move higher or geopolitical risks escalate further. However, I don’t see a meaningful breakdown.
If anything, we’re still missing, and what I’d actually like to see is a little more de-risking in crowded trades like semiconductors and memory stocks in particular. Those types of repositioning resets are often necessary to seal a lasting bottom.”
At the time of writing, the S&P 500 is trading at 6,616 points.
The analyst goes on to say that there are four sectors that are well positioned to rise once the market bottoms.
“As we get into the later innings, the next question is: where do you want to be? For me, it’s about balance, and I think the right approach is a barbell on cyclical stocks and quality growth. On the cyclical side, I like financials, consumer discretionary and industrials. These are the areas where earnings momentum remains strong and valuations have fallen significantly. This is also what was leading before the start of the conflict in Iran and reflects our core view that we are still in last week’s jobs report supports this view: the private wage bill has increased by 186,000, one of the largest increases in three years.
In terms of growth, I’m currently focusing on the hyperscalers as a very good risk reward. These companies trade at about the same level as defensive sectors such as the basics, but with earnings growth more than three times as high. Meanwhile, sentiment positioning is as bad as it has been since the 2022 bear market, when these companies posted negative earnings growth.”
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