Strategy Data Pack – December 2024

Summary of Morgan Stanley US Equity Strategy Conference Call (December 6, 2024) Company and Industry - Company: Morgan Stanley - Industry: US Equity Market Key Points and Arguments - 2025 US Equities Outlook: Investors should remain nimble due to potential uncertainties from recent election outcomes [2][3] - Price Target Increase: The base case 12-month price target is raised to 6,500, forecasting a 21.5x P/E multiple on a 12-month forward EPS of US$303 [2][3] - Earnings Growth Forecast: Expected EPS growth of 13% in 2025 and 12% in 2026, driven by mid-single-digit revenue growth and margin expansion [2][3] - Investment Recommendations: - Long quality cyclicals as Fed rate cuts and stabilizing macro indicators support their outperformance [2][3] - Favorable outlook for Financials following an upgrade in early October [2][3] - Preference for Software over Semiconductors in the Tech sector due to relative earnings revisions [2][3] Additional Important Content - Market Scenarios for 2025: 1. Soft Landing: Decelerating growth and inflation, with GDP growth below potential and inflation falling towards 2% [28] 2. No Landing: Accelerating growth with inflation remaining around 3% [28] 3. Hard Landing: Potential recession due to corporate profits recession or unexpected shocks [28] - Earnings Revisions: Earnings appear set to rebound in 2025, but forecasts are not improving significantly [36] - Sector Performance: The market has priced a strong rebound, with leading economic indicators slowly recovering since mid-2023 [32] - Equity Risk Premium: The US equity risk premium is below post-GFC lows, indicating a potentially overvalued market [96][98] - Sector Recommendations: - Overweight: Energy, Utilities, Financials, Industrials - Neutral: Communication Services, Health Care, Consumer Cyclicals - Underweight: Staples [55] Conclusion Morgan Stanley's analysis indicates a cautious yet optimistic outlook for the US equity market in 2025, emphasizing the importance of quality investments and adaptability in response to changing economic conditions. The firm anticipates a broadening of market performance after a concentrated 2024, with specific sector preferences guiding investment strategies.