As we gear up for the upcoming presidential election, Morgan Stanley is shifting the focus to the business cycle when it comes to stock picking. Recent increases in yields, driven by encouraging economic data such as the wholesale inflation report, suggest that the bond market is starting to shake off some of its growth concerns and embrace the belief that the economy is on stable ground.
Equity strategist Michael Wilson of Morgan Stanley highlighted the positive correlation between cyclical stocks and the upward movement of the 10-year Treasury yield. He believes that both rates and economic indicators will continue to support cyclical stocks, which are expected to benefit from a resurgence in capital market activity, a more favorable lending environment, and an uptick in stock repurchases.
With the S & P 500 hitting a new record high and investor sentiment remaining positive, Wall Street is eagerly anticipating the latest batch of third-quarter earnings reports. Amidst this backdrop, Morgan Stanley has identified several cyclical stocks that are worth keeping an eye on. These companies are all rated overweight by the firm and represent promising investment opportunities.
One standout on the list is Nvidia, a leader in artificial intelligence technology. The company’s shares have surged over 178% this year, driven by strong demand for AI applications and its powerful GPUs. Analysts are bullish on Nvidia’s prospects, with Goldman Sachs raising its price target on the stock and citing potential for increased business in AI inference.
Another company to watch is Wells Fargo, a banking stock that has seen a more than 27% increase in its share price this year. Despite a drop in net interest income, Wells Fargo reported better-than-expected third-quarter results and ramped up its stock repurchases. Analysts believe that the company is well-positioned to benefit from higher interest rates and regulatory restrictions being lifted in the future.
In addition to Nvidia and Wells Fargo, Google-parent company Alphabet and delivery service DoorDash are also on Morgan Stanley’s radar as promising cyclical stocks. These companies, along with others on the list, have the potential to deliver strong returns for investors in the current economic environment.
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