Best-placed U.S. large-cap stocks for 2022 amid Fed hawkish stance, Morgan Stanley says

Stock markets around the world are watching closely the tightening of central bank monetary policy as the new year dawns. Amid a tightening in policy and an expected deceleration in growth, analysts at Morgan Stanley have said large-cap stocks are still proving to be the best game to help investors pocket healthy gains. The brokerage firm has been recommending large-cap stocks listed in the United States since mid-November last year. “… We believe that growth will slow down this year, as most of our leading indicators point to this result. In addition, this momentum should support defenses outperforming cyclicals in quality leadership from large caps, ”they added.

The Hawkish American Fed in the lead

The US Federal Reserve is expected to be more hawkish in 2022, as inflation continues to be a major concern amid the era of low interest rates. “On the first point, the Fed and other central banks appear determined to remove monetary accommodations in the face of higher inflation,” said Mike Wilson, chief investment officer and chief US equity strategist for Morgan Stanley. He added that the US midterm election could make the US Fed more hawkish than expected.

The minutes of the Fed’s FOMC meeting in December show that the US central bank could be more hawkish than expected. At the Fed policy meeting on December 14-15, policymakers said a “very tight” labor market and rising inflation could force the US Fed to raise rates earlier and start cutting rates. global assets as the second brake on the economy. The comments have since caused the NASDAQ to fall more than 3% while the Dow Jones has slipped almost 1%.

Where to invest

“Over the past nine months, the quality bias has driven more and more money into a handful of large-cap growth stocks – further underscoring the importance of prioritizing large over small since March,” he said. said Mike Wilson. Aside from large caps, Mike Wilson advised investors to look at stocks that have already corrected but still offer good prospects at reasonable valuation. “A few areas that we think make sense to consider include consumer services and other businesses with pent-up demand. In the most promising segments, we believe that biotechnology and the Chinese Internet are good candidates for bottom fishing. Meanwhile, we would still be cautious with very expensive tech stocks which remain unprofitable. ” he added.

Among defensives, the Morgan Stanley equities strategist said healthcare, REITS and consumer staples tend to be the best performers in a sluggish but positive growth regime. In addition, analysts also have a positive opinion on financials. “We remain positive on financials, our only cyclical overweighting. A rate saving is the reason, and it could happen now, ”added Mike Wilson.

Suggesting an approach at the helm, Mike Wilson said that in 2022, investors should stick with a quality large-cap defensive bias, but balance it with financials and small-to-mid-cap value stocks. .