Overview

Morgan Stanley Investment Management’s Andrew Slimmon believes that the markets are poised for a “strong rally” by the end of the year. He shared his insights on ‘s “Street Signs Asia” on Tuesday, stating that he expects the S&P 500 to reach around 5,000 by then. This would represent an upside of nearly 13% from Monday’s closing value of 4,433.

Positive Fund Flows Expected

Slimmon, managing director and senior portfolio manager at the firm, anticipates that as the year progresses, the consequences of being underweight on equities and the resulting underperformance will intensify. This will likely drive positive fund flows into the market.

Reasons for Optimism

August has been a challenging month for stocks, but Slimmon remains optimistic. He emphasized that year-over-year quarterly earnings are expected to shift from negative to positive after Q3, which historically has been a favorable development for equities. Additionally, he highlighted the significant amount of spending on U.S. public works scheduled for the fourth quarter, which he believes will have a very bullish effect on stocks. This includes investments introduced by the Inflation Reduction Act, the Chips Act, and the Infrastructure Spending Bill.

Investor Sentiment and Stock Picks

Slimmon noted that investor sentiment has been overly bearish throughout the year, despite improving market sentiment. Many investors have preferred fixed income options that offer around 5% returns. However, Slimmon cautioned that if stocks experience a 15% to 20% rise, under-allocated investors may face challenges. He revealed his positive outlook on three stocks: Alphabet, United Rentals, and CRH. Slimmon also mentioned the “Magnificent Seven” stocks that are likely to attract investors, including Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla.

Potential Upside for Recommended Stocks

Analysts covering Alphabet estimate a potential average upside of 14.5%, while United Rentals and CRH are projected to have potential average upsides of 10% and nearly 18%, respectively.

Source: ‘s Michael Bloom