According to Morgan Stanley’s CIO and Chief U.S. Equity Strategist, Mike Wilson, the confirmation of a bottom for U.S. equities hinges on a specific event.
Wilson shared in a recent episode of Morgan Stanley’s Thoughts on the Market podcast that a reduction in investors’ exposure to popular investment positions would signify the end of the current market correction.
“The S&P 500 recently rebounded from the 6,300 to 6,500 support range that I’ve been monitoring. While a retest of these levels is possible, especially with potential increases in rates or geopolitical tensions, I do not foresee a significant breakdown. What we really need to see is further de-risking in crowded trades such as semiconductors and memory stocks. This kind of repositioning reset is often necessary to solidify a lasting bottom,” Wilson stated.
Currently, the S&P 500 is trading at 6,616.
Wilson also highlighted four sectors that are poised to experience growth once a market bottom is established.
“As we approach the later stages, the focus shifts to where to invest next. I believe in a balanced approach, leaning towards a mix of cyclical and quality growth. In terms of cyclicals, I favor financials, consumer discretionary, and industrials due to their strong earnings momentum and attractive valuations. These sectors were leading prior to the recent geopolitical tensions and align with our belief that we are still early in a recovery from the ongoing recession. The latest jobs report, showing a significant increase in private payrolls, supports this outlook,” Wilson explained.
“On the growth side, I am particularly interested in hyperscalers for their favorable risk-reward profile. These companies are trading at similar multiples to defensive sectors like staples but offer over three times the earnings growth. Additionally, sentiment towards these companies is at its lowest since the bear market of 2022 when they were experiencing negative earnings growth,” he added.
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