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“While the last four months have been exceptional, we think that this cycle has been, and will be, more ‘normal’ than appreciated,” said Andrew Sheets, the bank’s chief cross-asset strategist.
“We think that stocks and credit will be modestly higher and tighter over the next 12 months,” he said. The bank forecasts the S&P 500 index at 3,350 points and benchmark U.S. 10-year yields at 1.3% by mid-2021.
The call, made in a note dated Sunday and distributed on Monday, comes as global markets pull back from a sharp rally that has lifted world stocks about 36% from March lows.
The S&P 500 (SPX) closed at 3,041.31 points on Friday and U.S. 10-year yields (US10YT=RR) last sat at 0.6625%.
Morgan Stanley analysts suggest clients take long positions in U.S. small caps and financials, the euro and emerging market currencies, such as the Indonesian rupiah and Indian rupee, and add a little bit more risk to their credit portfolios.
“We recommend a broad rotation into cyclicals and value across global equities.”
