The worst of the market sell-off is over, and investors should buy stocks now before prices rise in 2021, Morgan Stanley's investment chief says
Morgan Stanley's chief investment officer who called the October stock market pullback is now saying the worst of the sell-off is over, and investors should buy stocks before prices rise in 2021.
- While volatility will remain high into November, the conclusion of the US election and the announcement of a vaccine will be positive for stocks, Mike Wilson said Monday on the Thoughts on the Market podcast.
- "The bottom line for us is that the correction we expected is now mostly finished, and adding to further bouts of weakness this week is recommended," Wilson said.
- Wilson told investors to buy sectors that hinge on the re-opening of the economy next year, such as financials, industrials, and consumer services.
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The Morgan Stanley chief investment officer who called the October pullback now says the worst of the sell-off is over, and investors should buy stocks before prices rise in 2021.
In a Monday episode of the Thoughts on the Market podcast, Mike Wilson said that while the next few weeks are likely to remain volatile and uncertain, another large drop in stocks is unlikely.
Two weeks ago, Morgan Stanley suggested that the stock market was due for its second 10% pull-back, as concerns grew around the election, a resurgence in coronavirus cases, and the lack of a second fiscal stimulus. Wilson said he was concerned that stock valuations were too high given these three risks.
The conclusion of trading on Friday proved his prediction was largely accurate: the S&P 500 fell 5.6% last week and was down 9% from its peak almost two months ago.
So far this week, the market has rallied off those lows and the S&P 500 closed higher for its second straight day on Tuesday.
"The bottom line for us is that the correction we expected is now mostly finished, and adding to further bouts of weakness this week is recommended," said Wilson, who also serves as Morgan Stanley's chief US equity strategist.
Read more: Iconiq Capital, which counts some of the world's most influential families as clients, broke down the investment implications of the US election. Here are the highlights of it's 23-page presentation.
Wilson acknowledged that the risks that were present before the pullback are still here, but stock valuations have dropped to a less risky level. He said Morgan Stanley's primary concern two weeks ago was that valuations were too high in the market given the uncertainty. Now, the price-to-earnings ratio for US stocks has fallen 10%, said Wilson.
Furthermore, he said both the US election and the announcement of a coronavirus vaccine are likely to be resolved within the next three months, which will push stocks higher over the next year.
Even if a vaccine isn't deployed quickly, the US has learned how to manage and treat the virus effectively and the economy should be fully open by the spring of next year, said Wilson.
He says investors should buy stocks that hinge on the re-opening of the economy. Consumer services, financials, materials, industrials, and small and mid-caps are all sectors that could gain higher, Wilson said.
Read more: Famed economist David Rosenberg told us 4 crucial trends won't change no matter how the elections go. Here's how to invest in them all.
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