Morgan Stanley: The rotation in the semiconductor sector will continue, but the fundamentals do not support chasing mini-cap stocks
1min read As investors aggressively rotate out of U.S. tech giants and into some lagging stocks, the trend is likely to continue, but the fundamentals still don’t support chasing small caps, says Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management.
Shalett, in a note to clients on Monday, said large-cap, high-quality cyclical stocks are her top picks.
She recommends financials, energy, industrials, aerospace/defense, mid-cap power/gas infrastructure and residential REITs.
“Give up on chasing small caps as the rally may not be sustainable,” she wrote.
Factors supporting the rotation include the expected Fed cut, the steepening yield curve, the weakening dollar and earnings growth extending to non-FANG companies.
A Republican victory in November could bring out the “animal spirits” in small caps, but that may be short-lived.
“We prefer the defensive nature of large caps — earnings,” Shalett said.
