Institutional investors more confident in soft landing, says Morgan Stanley By Investing.com

Investing.com — Institutional investors are showing renewed confidence in a soft U.S. landing, Morgan Stanley strategists said in a note on Wednesday.

After holding more than 150 meetings with institutional investors across North America, Morgan Stanley’s equity strategists noted a significant shift in sentiment toward the soft landing narrative.

“We sensed much less hesitation about the soft landing narrative than we saw over the summer and in/during the recent growth scare,” the note said.

The focus of much investor discussion has been on how to position for this scenario, with cyclical and rate-sensitive stocks drawing interest.

The term “gold rush” came up frequently late last week following the Fed’s 50 basis point cut in the key rate, pointing to a moderate growth and inflation environment.

Investors were particularly interested in cyclical exposures, with “how to position for gold nuggets?” being their main question, says Morgan Stanley.

This shift in sentiment is a significant change from the growth scares witnessed earlier this year. The Wall Street firm previously noted more concern about the possibility of a hard landing, but now, there was only one investor “who expressed serious concern about the potential for a hard landing,” the note points out.

The strategists emphasized the relevance of their game in the mid-1990s, drawing parallels between the current environment and the soft landing experienced at that time.

“We view the best positioning to play goldilocks as a combination of selected cyclical stocks with underlying fundamentals, rate-sensitive stocks, a sustained rebound in European equity growth/AI Winners and, most importantly, an idiosyncratic pick of shares”, they. he wrote.

While confidence in a US soft landing has grown, concerns about China’s economic outlook remain.

Morgan Stanley points out that investor sentiment towards China was very depressed ahead of the country’s recent stimulus announcement. Despite the measures, many investors remain cautious, particularly in sectors with high exposure to China, such as metals and mining.

“Most investors viewed the sudden withdrawal of raw materials for steel production as overdone,” strategists said.

“However, they appeared reluctant to position themselves for a rally given the low conviction on the outlook for Chinese stimulus (which surprised positively in hindsight) and the perceived transitory nature of the typical Q4 seasonal increase.”

At the same time, the optimism surrounding the soft landing narrative has led to increased engagement by US investors in European markets, with many focused on specific alpha-generating opportunities.