Morgan Stanley said the risk of an economic slowdown now outweighs the risk of inflation. In the middle of the year, the stock market was near all-time highs, driven largely by a handful of large tech stocks tied to the artificial intelligence industry. The S&P 500 has soared nearly 15% this year and set more than 30 closing records. But Morgan Stanley worries that poor market breadth, which measures the number of advancing stocks compared with declining ones, suggests slowing economic growth is becoming a bigger risk than stubbornly high inflation. As evidence, Wall Street investment banks cited downside surprises in recent macroeconomic data. “With broadly weak year-to-date macro data, many lower-quality and economically-sensitive market sectors have lagged, while a handful of higher-quality large-cap sectors have lagged,” Morgan Stanley equity strategist Mike Wilson wrote. “We think this is a sign that the market is becoming more focused on weak growth and less focused on inflation and (interest rates),” Wilson said. “While the S&P 500 and Nasdaq, which are relatively dominated by technology stocks, have risen by nearly 15% and 17% respectively this year, the Dow Jones Industrial Average, which is less affected by the theme of artificial intelligence, has risen by nearly 5%. Meanwhile, the Russell 2000 index is up just 0.5% in 2024. To be sure, the Morgan Stanley strategist doesn’t think the breadth of weakness portends weak returns. Any expansion in the market right now will be limited to high-quality, large-cap and defensive stocks, especially with what he sees as the most likely economic slowdown ahead: “A growth scare is enough to turn a bad economy off,” Wilson said. The data turns out to be bad news for across-the-board equity (P/E) multiples. “We believe this is the most likely risk, and our conversations with customers confirm this view. ” Here are some quality large-cap and defensive stocks with strong profit forecasts that could outperform, according to Morgan Stanley. These stocks are among the top 1,000 stocks by market capitalization and rank in the top three of the Composite Quality Composite Index 1. Burlington shares are up 25% this year, and Morgan Stanley has an overweight rating on the stock. A report from Bernstein on Monday said off-price retailers like Burlington will continue to outperform. Retail. The company’s Aneesha Sherman writes: “We expect BURL to steadily improve margins and return on invested capital from new stores, as well as improve margins from existing operations through better sourcing and supply chain processes – we Investment returns are forecast to reach 10% by 2026. Monster Beverage appears on Morgan Stanley’s Overweight-rated stock, which is down more than 14% this month in a report from Jefferies. Said that Monster Beverage is one of the company’s first-choice brands when the consumer economy is divided, and said that the brand “is least affected by price cuts and private brands.” Nvidia and HubSpot also appeared on Morgan Stanley’s screens.
