Investing.com – Institutional investors are showing renewed confidence in a soft landing in the U.S., Morgan Stanley strategists said in a note on Wednesday.
After holding more than 150 meetings with institutional investors in North America, equity strategists at Morgan Stanley have noticed a significant shift in sentiment toward the soft landing narrative.
“We felt much less hesitation with the soft landing narrative than we observed over the summer and during the recent growth panic,” the note said.
The focus of many investor discussions has been how to deal with this scenario, with cyclical stocks and interest rate sensitive stocks attracting interest.
The term “moderate” appeared frequently by the end of last week after the Federal Reserve cut interest rates by 50 basis points, indicating an environment of moderate growth and inflation.
Investors were particularly interested in cyclical exposures, with “How to identify appropriate positions for moderate rates?” “It’s their key question,” says Morgan Stanley.
This shift in sentiment is a marked change from the growth concerns we saw earlier this year. The Wall Street firm had previously indicated more concern about the potential for a hard landing, but now, there was only one investor who “expressed serious concern about the potential for a hard landing,” the note highlights.
The strategists emphasized the importance of the rules of the game they followed in the mid-nineties, and compared the current environment with the soft landing witnessed during that period.
“We view the best position for a ‘moderate’ play as a mix of selected cyclical stocks with fundamental fundamental drivers, interest rate sensitive stocks, a sustained return in good growth in Europe, winning technology/AI stocks and, most importantly, sound stock picking.” private”. books.
Despite growing confidence in a soft landing for the United States, concerns about China’s economic outlook remain.
Morgan Stanley notes that investor sentiment towards China was very low prior to the country’s recent stimulus announcement. Despite these measures, many investors remain cautious, especially in sectors with significant exposure to China, such as metals and mining.
“The majority of investors viewed the sharp decline in raw materials for the steel industry as overstated,” the strategists said.
“However, they seemed hesitant to gear up for a rally given the low conviction in China’s stimulus prospects (which in hindsight surprised favorably) and the perceived transitory nature of the typical seasonal rebound in Q4.”
At the same time, optimism surrounding the soft landing narrative has increased US investor participation in European markets, with many focusing on specific opportunities to generate alpha.