Morgan Stanley believes that the business cycle is crucial for stock picking, even as attention shifts to the presidential election. After recent economic data, including a positive wholesale inflation report, bond market yields have risen, suggesting stability in the economy. This gives more confidence to invest in cyclical stocks, which are likely to benefit as the 10-year Treasury yield rises. Analyst Michael Wilson expects that rates and economic trends will support cyclical stocks, buoyed by increased capital market activity, better lending conditions, and more stock buybacks. This comes as the S&P 500 hit a record high, driven by strong earnings reports from several companies. Here are some cyclical stocks that Morgan Stanley highlights as ‘overweight’:
– **Nvidia (NVDA)**: Up over 178% in 2024, driven by strong AI demand for its powerful GPUs. Goldman Sachs recently raised its price target for Nvidia, citing strong future opportunities in AI.
– **Wells Fargo (WFC)**: Shares have risen more than 27% this year. The bank reported strong third-quarter results despite a decrease in net interest income and has repurchased $3.5 billion in stock, a significant increase from last year. Analysts believe it will benefit from rising interest rates and lifting regulatory restrictions.
– **Other Notable Companies**: Alphabet (Google’s parent company) and DoorDash are also on Morgan Stanley’s watchlist.
