For Morgan Stanley’s Andrew Slimmon, Americans are still ready and able to shop — and he’s doubling down on his bet that the companies catering to them will rally this year.
(Bloomberg) — For Morgan Stanley’s Andrew Slimmon, Americans are still ready and able to shop — and he’s doubling down on his bet that the companies catering to them will rally this year.
Slimmon, senior portfolio manager at Morgan Stanley Investment Management, said at the top of his list are consumer discretionary stocks, which he started buying late last year as the sector hurtled toward a 37% annual selloff. Taking his cues from homebuilder performances, he’s still snapping up stocks that he sees as bargains.
“Opportunities are in these areas that got creamed last year that have started to recover but are still way off the 52-week highs,” he said in a phone interview. “Stocks were reflecting just a ton of bad news.”
There are recent signs that housing demand has stabilized as mortgage rates have started to come down, according to Bloomberg Intelligence. The S&P 500’s homebuilding gauge is up by nearly 6% year-to-date and about 20% in the past six months, handily beating the S&P 500 in both periods. Inevitably, home furnishings, which have fallen 15% in the past six months, will also outperform the broader market, Slimmon said, just as home improvement shares have been beating the benchmark gauge since July. He declined to name specific firms.
Slimmon also highlighted the recent survey by the University of Michigan, which showed US short-term inflation expectations falling to the lowest in nearly two years, evidence that Americans are feeling better about the economy and their finances.
“Whenever anything gets this extreme, it’s only a question of when it snaps back,” he said. “By the time consumer sentiment turns back up — ‘oh things aren’t that bad’ — these stocks will be up a ton.”
Government stimulus checks in 2020 and 2021 spurred American shopping sprees, but last year’s price spikes scared many buyers away. The Consumer Discretionary Select Sector SPDR Fund (XLY) closed out 2022 with its worst drop on record.
The outlook appears rosier this year thanks in part to China’s economic reopening and a possible slowdown in rate hikes by major central banks including the Federal Reserve. Nonetheless, many investors are still worried that the US will see a recession. Slimmon is not among them.
“I don’t hear companies talking about a collapse in their business and, therefore, I think fourth quarter earnings will not be as bad,” he said. “If we’re about to have recession, you wouldn’t see the financials, materials, energy, industrials leading. They would be woeful laggards. Consumer staples, utilities, they would not be showing good relative strength. So I don’t think a recession is around the corner.”
So what isn’t he buying these days?
“I would avoid the winners from last year,” he said.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.
