Market Overview

Despite Downturn, Morgan Stanley Still Buying Stocks Ahead Of Earnings Season

Despite Downturn, Morgan Stanley Still Buying Stocks Ahead Of Earnings Season

The stock market is off to a shaky start this year, prompting investors to question the longevity of the nine-year-old bull market. However, Morgan Stanley is still buying stocks, and analyst Michael Wilson said on Monday that there are plenty of value to be found.

What's Going On

From a value perspective, Wilson said the S&P 500 still looks relatively cheap at a forward price-to-earnings ratio of around 17. In addition, he said all of the potential negative catalysts troubling investors have been priced into stock prices at this point.

“We think many of the risks that have rattled markets of late (inflationary fears, Fed, rolling economic surprise indices, trade concerns, fears of potential regulatory backlash to internet stock leaders, a flattening curve, and rising vol) have been priced fairly and we could see a modest rerating as fundamentals come through in earnings season,” Wilson said.

Why It's Important

Wilson said first-quarter earnings season will likely be a positive period for stocks.

“We believe that organic momentum aided by fiscal stimulus coming through early in the year should sustain a supportive environment for earnings growth that will be reflected in 1Q results,” Wilson said.

What's Next

For investors looking to buy the dip, the Energy Select Sector SPDR (ETF) (NYSE: XLE) might be a good place to start. The Energy sector is down 7.9 percent year-to-date, more than any other market sector. The Consumer Staples sector, the Telecom sector and the Materials sector are also each down more than 7 percent on the year.

Following another 2.5 percent decline on Monday, the SPDR S&P 500 ETF Trust (NYSE: SPY) is now down 4 percent on the year.

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