Stock Picks to Buy and Best Investment Ideas: Morgan Stanley – Business Insider

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  • Michael Wilson of Morgan Stanley says US households have spent their pandemic-related savings.
  • He cautions that spending and economic growth will shrink when most investors expect a recovery.
  • With that backdrop, Wilson updated his increasingly-defensive list of top US stock picks.

Investors have been in a cheery mood lately as markets keep rising. When they get worried these days, their concerns are about phenomena that are well-known at this point, like the Delta variant and supply chain snags.

But Michael Wilson, chief investment officer and chief US equity strategist for Morgan Stanley, says there is still an economic slowdown coming — and investors who think it’s going to be short-lived are missing the boat.

“We have been expecting a material slowdown in both economic and earnings growth amid a mid cycle transition,” he wrote in a recent note to clients. “The Delta variant is not the primary reason why growth has slowed, in our view. Instead, we think it’s simply a more dramatic mid cycle transition than normal given the speed and velocity of the recovery so far.”

He also writes that the supply chain problems will last longer than most traders expect, and demand from consumers is going to be weaker than they believe.

“We think the growth slowdown will be worse and last longer than expected — i.e., well into the first half of 2022 as the payback in demand arrives with the sharp y/y decline in personal disposable income,” he said.

It’s well-known that Americans built up a lot of savings during COVID thanks to stimulus payments and the absence of many forms of non- streaming entertainment and leisure. While some prognosticators think those savings will keep the economy afloat for a while, Wilson says the money has been spent and consumers are roughly back to pre-pandemic savings levels now.

He added that a survey by National Public Radio and Harvard found that 59% of households with less than $50,000 in annual income reported severe financial problems in the last few months, while 38% of all households said the same.

That helps explain a recent dip in consumer confidence, and it could mean people are about to spend far less than investors think they will. Wilson suggests that that’s a setup for economic and stock market disappointment even before factoring in the supply chain issues and other problems.

“A key message from us over the next several weeks is to stay selective and to stay more defensive in terms of positioning,” Wilson wrote. “We continue to like relatively reasonably priced Software over Hardware and Semis in Tech, Services over Goods in Discretionary, Financials and Healthcare.”

That creates a more defensive portfolio with less supply chain risk, he said. At the same time, he updated his firm’s Fresh Money Buy List by removing tech giant Alphabet.

“GOOGL has been a top performer since the end of March. Not only has it outperformed the S&P 500 by almost 20%, but it’s been the best performing FANG stock over that period, leaving less relative upside at this point,” he wrote, adding Snap’s recent weak earnings might make the market quick to dump Google stock.

That leaves the following nine companies on the list of Buy-rated long-term outperformers, which, in line with Wilson’s ideas, has developed a notable skew toward real estate.

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