Morgan Stanley backs US assets except dollar
The Wall Street bank has turned 'overweight' on American stocks and sovereign bonds from a 'neutral' stance. — Reuters
NEW YORK: Morgan Stanley has raised its call on US stocks and Treasuries on expectations that a slew of future interest-rate cuts by the Federal Reserve (Fed) will support bonds and boost company earnings.
The Wall Street bank has turned 'overweight' on American stocks and sovereign bonds from a 'neutral' stance, according to a note from strategists including Serena Tang, global head of cross-asset strategy research.
The S&P 500 Index will reach 6,500 by the second quarter of 2026, while the yield on 10-year Treasuries will drop to 3.45%, they said.
However, the dollar should continue to weaken thanks to a 'convergence in US rates and growth to peers,' the strategists wrote in the note dated May 20.
Morgan Stanley's latest outlook comes as US markets recover from the losses brought on by President Donald Trump's global trade war in April.
Investors now have to navigate the fading appeal of US exceptionalism and wait on tariff negotiations and fractious budget talks on Capitol Hill while weighing the potential for rate cuts.
'We think that stocks won't revisit the lows of April in the near term, especially since the large drawdowns experienced year to date have mainly been reactions to tariff shock-and-awe,' the strategists wrote.
'Our equity strategists see the future US policy agenda to be more accommodating and expect the seven Fed cuts our economists anticipate for 2026 to be supportive of higher-than-average valuations.'
The S&P 500 has recouped losses brought on by Trump's Liberation Day after he clawed back most tariff increases while trade talks started. It closed at 5,940 on Tuesday. Yields on Treasuries though have continued to gain, with the 10-year trading at 4.51%, on concern that proposed tax cuts will widen the US budget deficit.
'Despite unprecedented policy uncertainty, the global economy is still in expansion mode, albeit with slowing growth,' the strategists wrote in the note. 'Substantial monetary easing is ahead along with the benefits of deregulation.' — Bloomberg
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