Attention Turning to Slowing Growth
With the Fed’s pivot now well understood, investor attention now turns to growth, which is slowing and more than expected, Morgan Stanley equity strategist Michael Wilson said in a note.The current deceleration in growth is more about the “natural ebbing of the cycle” than the latest COVID variant, the analyst said. The slowdown has a bit further to go and equity markets haven’t yet priced for it, he said.
Defensives Over Cyclicals
Against this backdrop, playing defense makes more sense, the analyst said. The fatter pitch now is to be long defensives relative to cyclicals, he added.The analyst said he continues to like staples over discretionary goods. Demand payback is becoming more evident in the discretionary goods space, and the high prices are continuing to deter investors.
Q4 Expectations
On earnings, the analyst said fourth-quarter results will beat estimates by the typical 3 percent to 4 percent The outlook could be more mixed, as companies guide for the full year for the first time, the analyst said.Thus far, the median company beating earnings expectations traded down 50 basis points, and the median company missing was down 4 percent, he said.
S&P 500 earnings growth is tracking at 23 percent year-over-year, with all sectors but Utilities expected to see positive growth, Wilson said. The biggest contributors to index level earnings growth are expected to be Energy, Industrials, and Tech, with these three sectors likely to contribute more than half of the index’s growth, the analyst said.
