Morgan Stanley: Sectors To Buy As S&P 500 Poised For 2050

Morgan Stanley was bold with its recommendations in a report on sectors to buy for bullish investors.

“With the market off its highs and our view of EPS unchanged, we are once again bullish, buying
consumer discretionary, technology, and energy, while maintaining our overweight in healthcare, in anticipation of hitting new highs over the coming months,” begins the note.

S&P 500

Morgan Stanley’s sees 2,050 on the S&P 500 in one year (5.5 percent upside). Reasons for the upside include an improving economy, higher inflation adjusted yields and an easy money policy from the Federal Reserve.

Regarding corporate earnings, the note states: “So how would we call the top of the cycle? Our view is that hubris and debt define the top of every cycle,and as such, we monitor signs of growing costs that could ultimately translate into more downside to corporate earnings.Today, it is very hard to make that argument.”

Investors should look for aging backlogs and high book to bill ratios in technology and industrial companies before capital spending will increase, according to Morgan Stanley. Higher capital spending would create earnings downside risk.

Further, corporate debt does not seem to be a cause for concern.

Related: Risks Of PreMarket And After-Hours Trading

Sectors To Buy And Sell

Technology

The technology sector was upgraded from market-weight to overweight. Vantiv VNTV was added to the MOST Strategic Portfolio with a two percent weighting.

Materials

The materials sector was cut to market-weight from overweight. Royal Gold RGLD was removed from the MOST Strategic Portfolio while positions in LyondellBassell Industries LYB and Monsanto MON.

Consumer Discretionary

Consumer discretionary weighting was increased by three percent with the additions of Las Vegas Sands LVS and Nike NKE.

Energies & Utilities

Morgan Stanley is swapping Schlumberger Limited SLB and Sempra Energy SRE in the MOST Strategic portfolio. Both had one percent weightings.