Amid the buzz surrounding the upcoming presidential election, Morgan Stanley believes that understanding the business cycle is crucial for effective stock picking. Recent increases in yields due to positive economic data signals a shift in the bond market’s sentiment towards economic growth stability, according to equity strategist Michael Wilson. This shift bodes well for cyclical stocks that tend to perform better with rising 10-year Treasury yields, based on Wilson’s analysis.
Wilson anticipates that rates and economic data trends will support cyclical stocks in the current market environment. Factors such as increased capital market activity, a more favorable lending landscape, and upticks in stock repurchases are all expected to benefit cyclical stocks moving forward. The S&P 500 reaching record highs on the back of strong third-quarter earnings results further supports this sentiment. With optimism prevailing on Wall Street, all eyes are on how this week’s earnings reports will fare to sustain the positive trajectory.
Here are some of the cyclical stocks in Morgan Stanley’s spotlight, all of which have received an overweight rating from the firm:
- Nvidia: Known for its prowess in artificial intelligence, Nvidia’s stock has soared by over 178% in 2024. The company continues to thrive on the demand for AI applications driven by its powerful GPUs. Analysts like Goldman Sachs’ Toshiya Hari are optimistic about Nvidia’s potential to capture more AI inference business, fueling growth prospects for the stock.
- Wells Fargo: This banking giant has seen its shares surge by more than 27% this year. Despite a decrease in net interest income, Wells Fargo’s better-than-expected third-quarter results impressed investors. Additionally, the bank’s aggressive stock repurchases and ongoing investment in control functions make it a promising pick according to analysts like Barclays’ Jason Goldberg.
- Alphabet and DoorDash: Other companies on the list include Google’s parent company, Alphabet, and the delivery service provider DoorDash. Both companies present strong growth potential in the current economic climate and are poised to benefit from cyclical market trends.
As investors navigate the ever-changing financial landscape, keeping a close eye on the business cycle and its impact on various industries will be key to making informed stock decisions. Taking cues from Morgan Stanley’s recommendations can help investors position themselves strategically to capitalize on emerging opportunities in the market.
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