Investors should focus on a “late-cycle portfolio” of defensive stocks, industrials and energy, according to Morgan Stanley strategists led by Michael Wilson.
The market is in a late-cycle backdrop — a time when the Federal Reserve is expected to pause or reverse its hawkish policy stance — and more conservative equity factors, like high cash and low debt, have started to outperform, Wilson wrote in a note on Monday.
He reiterated his view that stock markets are not yet reflecting the risk of a recession.
“As is typical in such periods, multiple expansion has moved ahead of where macro fundamentals dictate fair value to be, placing the burden on a growth re-acceleration and/or incremental policy support,”wrote Wilson, whose negative outlook on stocks hasn’t materialized yet this year.
Wilson recommends a “barbell” approach, with a mix of defensive growth, industrials and energy. Health care in particular should do well, given its defensive and growth properties, especially after it underperformed the market this year, he added.
Source: thinkadvisor.com
