Morgan Stanley: U.S. stock correction opens up allocation space, strong profits support the attractiveness of cyclical stocks

On October 5, Morgan Stanley strategists said that valuations of U.S. stocks have fallen sharply since early summer. While earnings growth remains strong, the investment attractiveness of some market sectors is increasing. The team led by Michael Wilson said the correction has created a "better investment environment" for industries that are related to the economic cycle and whose fundamental prospects remain solid. Among them, the capital goods sector is particularly prominent, with its profit forecast increase ranking among the top in all industries. "Following the recent downward revision of valuations, some asset-heavy sectors are starting to look more attractive," Wilson said in a report on Monday. Since mid-August, U.S. stock market gains have slowed. Rising bond yields offset the boost from a strong earnings season, while companies start reporting third-quarter results in coming weeks and the market expects earnings to remain strong. Analysts expect the S & P 500 's third-quarter earnings to increase 25% year-on-year, after a 34% increase in the second quarter, Bloomberg Intelligence data showed. Artificial intelligence demand, record capital expenditures by cloud computing giants and a strong macroeconomic environment have driven earnings growth.