Morgan Stanley: Easing US-Iran tensions drives rotation into cyclical stocks, and the rally in US stocks will further spread

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Deep Tide TechFlow News, June 15 — Morgan Stanley strategists suggest that the U.S. stock market may receive additional support from a rotation of funds into cyclical and economically sensitive sectors, which underperformed during the Iran war.

Led by Michael Wilson, the team pointed out that reports of increased traffic through the Strait of Hormuz, along with signs that the drag from interest rates, oil prices, and the dollar on the stock market may be easing, could push undervalued stocks into the leading group of the market, which previously saw gains concentrated mainly in high-growth tech stocks. The S&P 500 is currently only about 2% below its all-time high.

Wilson stated that the recent pullback in the U.S. stock market was mainly led by declines in semiconductor stocks due to slowing earnings momentum, rather than deteriorating fundamentals. In a bull market driven by earnings growth, such pullbacks after a strong rally are common. Wilson said, “In the coming weeks, the market may still experience more volatility, but our confidence in the current bull market remains intact.” (Jin10)

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