Morgan Stanley strategist Andrew Sheets recently said the fate of the stock market — and the economy — in the months ahead was “unusually dependent” on Congress and President Donald Trump moving another round of fiscal stimulus to the finish line.
Sheets recommended that investors shift into cyclical stocks, which benefit from an economic expansion’s early momentum, in the event that another stimulus package is passed.
In a Monday note, Morgan Stanley Chief US Equity Strategist Mike Wilson reiterated that he also was bullish on an economic recovery and confident that another round of stimulus would come to fruition.
The prospects of Congress passing another coronavirus relief bill before the November elections remain uncertain. On Thursday, Senate Democrats unanimously voted against a slimmed-down GOP stimulus plan that extended federal unemployment benefits and granted aid to small businesses but left out direct payments to Americans.
Despite the political gridlock, Wilson recommended that investors look toward cyclicals as a play on the economy’s recovery.
“We’re bulls on the economy but think equities at the index level have largely priced in a good portion of the rebound. Further upside from here is about earnings moving higher and we expect valuations to be a headwind,” he said.
“We continue to prefer cyclicals over defensives, small over large, and companies that can exhibit strong operating leverage to an ongoing recovery,” he added.
Within cyclicals, Wilson is overweight on the industrials sector especially. He and his team of analysts pointed to six “high-conviction” industrial stocks to buy to profit from the early-cycle environment. They are listed below in no particular order with the bank’s reasoning behind each recommendation.