Tech stocks are no longer "the sole standout"! Morgan Stanley's Wilson is bullish on cyclical stocks: Regional banks and the transportation sector are expected to catch up.

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The US-Iran peace agreement is about to be signed, boosting market risk appetite. Wall Street strategists believe that the momentum for US stock gains is spreading from technology stocks to cyclical sectors.

Morgan Stanley strategist Wilson pointed out in his Monday report that passage through the Strait of Hormuz is expected to gradually resume, and the drag from interest rates, oil prices, and the US dollar on the stock market is marginally weakening, creating conditions for cyclical sectors to catch up. He maintains a bullish stance on undervalued cyclical sectors such as consumer discretionary, transportation, and regional banks, and stated that although these sectors have recently outperformed the S&P 500, market sentiment and positioning remain "pessimistic and sluggish."

Regarding the recent market correction led by storage chip stocks, Wilson believes the main reason is a slowdown in earnings momentum rather than deterioration in fundamentals, calling it a normal correction in an earnings-driven bull market. He said:

"There might still be some volatility in the coming weeks, but our confidence in the current bull market remains unchanged. This round of rally has been highly concentrated in high-growth tech stocks, but as the macro environment improves, cyclical sectors with more attractive valuations are expected to take the lead and broaden the rally."

Morgan Stanley’s bullish view is not unique. JPMorgan global equity strategist Mislav Matejka also favors the rotation to cyclical stocks, believing that as long as geopolitical tensions continue to ease and corporate earnings and inflation remain stable, rotation to cyclical stocks will become a "winning strategy throughout the year-end."

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