Equities: Focus more on stocks than sectors and styles over the next year – Morgan Stanley

2021 has been another very good year for US equity indices. What has been different in 2021 is the higher volatility under the surface with greater dispersion of returns between individual stocks. In the view of Mike Wilson, Chief Investment Officer and Chief US Equity Strategist for Morgan Stanley, 2022 is poised to be a year which favors single stock investing over a focus on style and sector.

In 2022, stock picking may lead

“With financial conditions now tightening and earnings growth slowing, the 12-month risk/reward for the broad indices looks unattractive at current prices. More specifically, we expect solid earnings growth again in 2022 offset by lower valuations. However, strong nominal GDP growth should continue to provide plenty of good investment opportunities at the stock level.”

“We will have to deal with the excesses created by the extreme nature of this recession and recovery. That breeds higher uncertainty and dispersion, making stock picking more important than ever in the year ahead.”

“We do have a slight bias for value over growth for the rest of the year as interest rates move higher, but this is more of a trading position rather than an aggressive investment view we had coming out of the recession in 2020. Expect our bias to flip flop in 2022 like this year, as macro uncertainty reigns.”