(Bloomberg) — Two of Wall Street’s top strategists have grown more bullish on U.S. stocks after signs of a robust labor market, economic resilience and an easing of interest rates.
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Morgan Stanley’s Michael Wilson – one of the most bearish voices on equities through mid-2024 – laid out his view on so-called cyclical stocks versus safer defensive peers, noting Friday’s huge payroll data and expectations of more rate cuts from the Federal Reserve.
His colleague at Goldman Sachs Group Inc., David Kostin, also raised his expectations for S&P 500 earnings growth next year as solid macro prospects boost margins. The strategist raised his 12-month target for the benchmark from 6,000 to 6,300 points, implying a gain of around 10% from current levels.
“We continue to believe we are in a ‘good is good’ environment when it comes to stock market reaction to labor and economic growth data,” Wilson wrote in a note. “The bond market is becoming less skeptical about the outcome of a soft landing, an important signal for equity investors.”
US stocks have recovered after a sell-off over the summer due to waning recession concerns and the Fed’s easing of policy. Traders expect the central bank to cut rates by another 100 basis points by May, swap data shows. Sentiment also got a boost on Friday, as payroll figures came in much stronger than expected.
Wilson said this setup bodes well for smaller U.S. stocks, which will benefit from improving business activity and sentiment, as well as lower investor positioning. The strategist eased his long-standing bet on large caps, citing weaker near-term risk reward.
In terms of sectors, Wilson upgraded his view on financials to overweight and downgraded healthcare and consumer staples.
JPMorgan Chase & Co. reports its profit figures on Friday, provides an update on the profitability of lenders and officially kicks off the profit season.
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