U.S. stocks will resume last year's 24% rally only if economic growth picks up, according to Morgan Stanley's Michael Wilson.
The S&P 500 has started 2024 on the backfoot, snapping a nine-week rally as traders dial back some of their exuberance over the timing and scale of U.S. interest-rate cuts.
Wilson — who was bearish for most of last year even as stocks rallied — expects that shifting views on the economy will fuel stock-market "twists and turns" throughout this year.
"This suggests a trading range until the outcome is more definitive," he wrote in a note. "Growth will likely need to reaccelerate (while rates remain relatively tame) for equity prices to move materially higher from here."
As a result, he suggests focusing on single stocks, factors and sectors rather than cap-weighted indexes.
Wilson laid out three possible scenarios for the U.S. economy this year.
The first — seen currently the most likely — is a soft landing with muted real growth and decelerating inflation. In this situation, a barbell strategy of defensive growth stocks and late-cycle cyclicals will continue to outperform.
