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Morgan Stanley’s Mike Wilson listed three ways growth could play out in 2024 and laid out a game plan for each scenario.
The economy could experience a soft landing with weak growth, a soft landing with increasing growth, or a recession.
“The probability distribution for these scenarios is balanced, but each has different implications for investments.”
There are three ways the economy can perform in 2024, according to Morgan Stanley Chief Investment Officer Mike Wilson. He created a stock market playbook for each of them.
“The probability distribution for these outcomes is balanced, but each has different implications for investments,” Mike Wilson wrote in a note on Monday.
This is how the stock market develops in soft landing scenarios and recessions
One scenario is a soft landing with weak growth, meaning investors should study individual stocks rather than broader market trends. Defensive sectors (like utilities) and cyclicals would perform better in this scenario, as would less volatile stocks like large caps.
Another possible outcome is a soft landing with a re-acceleration of the economy. This is the bull case, Wilson said, and has become more likely after the Fed meeting in December.
“This setup could ultimately lead to a further rise in interest rates, but that can still be a risk if growth improves (stock returns are strong when ISM and interest rates rise at the same time),” he noted. In this universe, small caps have their chance. Cyclicals and economically sensitive industries (e.g. restaurants and leisure) would also do well.
And then there is the more threatening prospect: a recession. “Our economists estimate a 30% chance of a hard landing over the next 12 months, broadly in line with buyer expectations from our dialogue,” Wilson said.
This text appeared first here and was translated from English by Joana Lehner.
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