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Morgan Stanley’s top equity strategist Michael Wilson has once again warned investors that the economic slowdown is worse than previously expected.
The strategist reiterated his view that the bear market won’t be completed until earnings estimates are cut to more reasonable levels. There has been some progress on this front in recent weeks as “the S&P equity risk premium has also risen to 340bps, closer to our fair value level of 370bps.”
Still, Wilson reminds investors that the “S&P 500 and Nasdaq 100 forward earnings estimates are both 20%+ above the post-GFC trend.”
On how to position after a brutal first half of the year, Wilson has reiterated his bullish stance on companies that can yield earnings stability.
An industry level earnings risk heat map developed by Morgan Stanley signals that “defensive industries (Telecom, Utilities, Insurance, Real Estate, parts of Staples and Healthcare) screen relatively well when assessed on this basis. Meanwhile, we find that cyclical tech groups (Tech Hardware and Semis) screen as having higher risk on this basis.”
Along these lines, the bank’s strategists developed a list of stocks that screen positively for earnings stability while also being Overweight-rated by analysts.
Among other names, the list includes Microsoft (NASDAQ:MSFT), Meta Platforms (NASDAQ:META), Walmart (NYSE:WMT), Exxon (NYSE:XOM), Salesforce (NYSE:CRM), Nike (NYSE:NKE), IBM (NYSE:IBM), and PayPal (NASDAQ:PYPL).
