LIVE MARKETS-What next? Morgan Stanley updates its stock market trade ideas

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WHAT NEXT? MORGAN STANLEY UPDATES ITS STOCK MARKET TRADE IDEAS

Investors remain cautious even as stocks have rebounded on hopes that trade deals will be reached to avoid the worst case scenarios for tariffs.

Morgan Stanley analysts led by Michael Wilson on Monday put out their latest trade ideas in light of the current conditions. These are:

Large caps over small caps - Large cap stocks have superior pricing power and operational efficiency while small caps, which are more sensitive to economic and rate changes, may be disadvantaged amidst a slowing macroeconomic backdrop, a static Federal Reserve, and persistently high backend rates.

Healthcare over staples for defensive hedges - Large cap healthcare stocks are trading at significant discounts to the broader S&P and Staples. They appear de-risked and offer better opportunities for finding defensive hedges than staples, which faces higher valuations, consumer slowdown exposure, and limited pricing power.

Industrials over consumer discretionary goods within cyclicals - Industrials offer a better risk/reward profile than consumer discretionary goods, thanks to stronger relative pricing power, less exposure to China/Vietnam tariffs, benefits from USMCA tariff exemptions on Mexico, and structural exposure to a potential infrastructure build-out, a policy priority for the current administration.

High quality stocks - “Simply put, late in the cycle, it pays to stay up the quality curve—stocks with less leverage, high operational efficiency and lower volatility of earnings streams/margins should benefit,” the analysts said. In particular, they point to high quality cyclicals that have already factored in a significant slowdown in macro conditions and earnings.

U.S. over international equities – Morgan Stanley notes that here it is focused on cyclical elements of the U.S. versus international stocks trade with a backdrop where higher quality areas of the market and indices such as the S&P 500 tend to outperform.

"It's a time when quality growth attributes tend to be rewarded as the cyclical impulse slows. US large cap indices stand out positively in this regard with more significant quality growth weights and lower volatility of earnings growth," they said. A weaker dollar is also likely to benefit U.S. relative earnings revisions breadth.

(Karen Brettell)

MONDAY'S EARLIER LIVE MARKETS POSTS:

SURGING BUYBACKS POINT TO MORE BULLISH STOCKS OUTLOOK CLICK HERE

SERVICES WITH WINCE: ISM AND S&P GLOBAL SERVICES PMI CLICK HERE

US STOCKS TRIPPED UP BY MORE TARIFFS - CLICK HERE

AI, HUMANOIDS AND THE NEXT TRILLION-DOLLAR TECH RACE CLICK HERE

MOMENTUM MAKES A MOVE CLICK HERE

WHAT TO EXPECT FROM GERMANY'S NEW CHANCELLOR CLICK HERE

GRAPPLING WITH "DISTORTED AND CONFUSED" MACRO SIGNALS CLICK HERE

EARNINGS MISSES PUNISHED BY MOST IN 20 YEARS CLICK HERE

EUROPEAN SHARES MIXED, ENERGY LAGS CLICK HERE

EUROPE BEFORE THE BELL: FUTURES NUDGING HIGHER CLICK HERE

TAIWAN DOLLAR LEAPS; BUFFETT TO STEP DOWN CLICK HERE