Morgan Stanley Expects U.S. Equities to Gain Momentum From Cyclical Stock Rotation Amid Easing Geopolitical Tensions

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According to Morgan Stanley on June 15, the investment bank's strategy team expects U.S. equities to gain additional momentum from sector rotation into cyclical, economically-sensitive stocks that underperformed during tensions in the region. The team, led by Michael Wilson, cited increased Hormuz Strait traffic reports and signs of easing pressure from interest rates, oil prices, and the dollar as potential catalysts for lower-valued stocks to lead the market, after gains concentrated heavily in high-growth tech. The S&P 500 currently sits within 2% of its all-time high. Wilson noted that recent market pullbacks were primarily driven by chip stock declines due to slowing earnings momentum rather than fundamental deterioration.
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