Morgan Stanley names top S&P 500 rebound plays
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- S&P 500 rose for a fourth straight session on Monday — its longest daily winning streak since Jan. 27, the day it hit a record close — ending at 6,611.83, up 0.4%
- Mike Wilson of Morgan Stanley said the pullback has likely entered its 'final innings,' with the index 'carving out a low' around 6,300 to 6,500, though he isn't ruling out a retest of last week's lows if the Iran conflict escalates
- Wilson recommended adding exposure to financials, consumer-discretionary, and hyperscalers, citing sectors where earnings remain strong, valuation has compressed, and sentiment is negative
- Bank stocks look particularly attractive after 'relative valuation compression' driven by what Wilson called overstated concerns over private credit and AI disruption
- Expected earnings growth for S&P 500 companies is accelerating despite the Iran war, a contrast to past oil-spike recessions where growth was already decelerating, per Morgan Stanley data
- The S&P 500's forward P/E ratio has dropped 18% — which Wilson called an 'extreme outcome' absent a recession or Federal Reserve rate hikes — while the 10-year Treasury yield finished Monday at 4.333%
- WTI crude traded above $112 a barrel on Monday, up roughly 96% year-to-date, fueling the inflation and growth fears that have knocked the S&P 500 5.7% below its January record
Why it matters: Morgan Stanley is telling clients to add risk to financials, consumer-discretionary, and hyperscalers despite WTI crude above $112 and the S&P 500 still 5.7% below its January record. Wilson's bull case rests on accelerating earnings growth and an 18% forward P/E compression he calls 'extreme' absent recession or Fed rate hikes.
