Banking giant Morgan Stanley believes the equity market can sustain its rallies to new all-time highs if several favorable tailwinds materialize.
In a CNBC interview, Chris Toomey, Morgan Stanley’s private wealth management managing director, says the Federal Reserve’s easing cycle is set to unlock liquidity that could push the stock market to greater heights.
“And what happens is when rates start going lower, you’re in a situation where your companies can also finance those buybacks by issuing cheaper debt. Credit spreads are actually at all-time lows. And that demand with regards for money markets and Treasuries also starts going down when yields start going down. So we all think those are tailwinds.”
According to the latest Fed data, the liquidity locked in money market funds amounts to $7.481 trillion, a new record high.
Toomey also lays out Morgan Stanley’s top sector picks in addition to tech and AI.
“We still like financials, which have done great. The big banks have done well. The investment banks have done well. We also like the alternative players, which are doing better. We also like industrials. We think there’s a fair amount of CapEx (capital expenditures) that we need to continue to build out with regards to some of that tax benefit that’s coming from the administration. That should also be helpful with regards to spend. So we think all of that should start to play out in other areas of the market.”
As of Tuesday’s close, the S&P 500 is trading at 6,656.
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