Morgan Stanley Sees 2% Rally Broadening Into Cyclical Stocks
morgan stanley said on Monday the US stock market rally may broaden into cyclical sectors, with consumer discretionary, transports and regional banks among the groups it sees gaining traction. The call comes as the S&P 500 sits about 2% below its record high, leaving investors focused on whether leadership can move beyond high-growth technology names.
Michael Wilson on cyclical rotation
Michael Wilson reiterated his bullish stance on under-owned cyclical sectors and said sentiment and positioning remained "bearish and muted" despite recent outperformance versus the S&P 500. His view points to a market that has already started to reward cheaper, economically sensitive shares after a long stretch in which tech carried most of the index.
Wilson said the current bull market is still intact, even after recent choppiness. He added that "While we might see some more choppiness in coming weeks, our conviction in the current bull market is intact."
Strait of Hormuz traffic
The team led by Wilson pointed to reports of increased traffic through the Strait of Hormuz and said the drag from rates, oil prices and the dollar on equities may be easing. Those shifts matter because they reduce pressure on the parts of the market that tend to struggle when borrowing costs, energy and currency strength all move against them at once.
Hopes for a lasting US-Iran agreement have also boosted risk sentiment in recent days, helping keep US stocks close to record territory. If that backdrop holds, the rotation Morgan Stanley described could keep spreading into sectors tied more closely to the domestic economy than to the narrow group of large technology winners.
Bearish positioning in US stocks
Recent declines in US equities, Wilson said, came from moderating earnings momentum rather than weakening fundamentals. He also said pullbacks are common during earnings-led bull markets after strong runs, which leaves room for short-term volatility even if the broader trend stays constructive.
The immediate setup for investors is a market still near its highs, but with a clearer path for cyclicals if sentiment on rates, oil and the dollar continues to ease. For now, Morgan Stanley is calling for more breadth, not a fresh regime change.
