This article first appeared on GuruFocus.
Morgan Stanley (NYSE:MS) strategists have projected further upside for US stocks as investors begin rotating into cyclical sectors that had lagged during the Iran war. The team led by Michael Wilson pointed to increased traffic through the Strait of Hormuz and signs that pressure from rates, oil prices and the dollar may be easing. That setup could help pull cheaper stocks into market leadership, after gains had been heavily concentrated in high-growth technology shares.
Wilson reiterated his bullish view on under-owned cyclical sectors such as consumer discretionary, transports and regional banks. He noted that sentiment and positioning in these areas remain bearish and muted, even after their recent outperformance versus the S&P 500. Hopes for a lasting US-Iran agreement have also lifted risk sentiment, with the S&P 500 sitting only about 2% below its record high. Lower energy prices could reduce inflation risks and possibly ease pressure on Federal Reserve policymakers to consider another rate increase.
JPMorgan Chase (NYSE:JPM) strategist Mislav Matejka echoed the bullish view, saying the rotation into cyclicals is on track to remain a winning strategy through year-end, as long as geopolitical tensions ease and earnings and inflation remain stable. Deutsche Bank (NYSE:DB) strategist Maximilian Uleer also closed a trade favoring US stocks over European equities, citing the risk that US outperformance drivers such as technology leadership and stronger earnings growth may begin to fade. Wilson added that the recent pullback in US equities, led by memory-chip stocks, reflected moderating earnings momentum rather than weakening fundamentals, while saying his conviction in the current bull market remains intact.
