Stock market today: Nasdaq closes above 23,000 for first time as tech rebounds
Investing.com -- Morgan Stanley equity strategist Michael Wilson said U.S. equity valuations appear justified as the economy enters an early-cycle phase, with improving earnings momentum and structural inflation supporting stock prices.
“Our conversations with investors over the past several weeks indicate that our rolling recovery/early cycle thesis remains out of consensus,” Wilson said in a note on Monday.
“The stage is now set for positive operating leverage to return in a way we haven’t witnessed since 2021.”
Morgan Stanley expects an acceleration in earnings per share growth in 2026, helped by “pent-up demand” and a slowdown in labor cost growth since 2022.
The bank said some inflation next year could be “constructive for earnings like it was in 2021,” adding that “inflation is positively correlated to top and bottom line growth.”
On valuations, the analysts rejected comparisons to the late-1990s tech bubble, saying that “free cash flow yield for the median large cap stock is almost triple what it was in 2000.”
They noted that when adjusted for profit margins, the market multiple “looks much more reasonable,” trading at a “40% discount” to that period.
Wilson said Morgan Stanley’s “run it hot” thesis points to higher structural inflation, which “makes equities and gold key inflation hedges.”
The analyst added that “equity prices relative to gold are almost 70% below the all-time peak in 1999,” suggesting that “stocks are likely the cheaper inflation hedge.”
The firm also reiterated its overweight stance on healthcare, calling it “the best defensive hedge for U.S. equity investors” amid potential near-term headwinds.