Michael Wilson, chief investment officer of Morgan Stanley, well-known on Wall Street, said on Wednesday that if US President Biden successfully re-elected in the November election, the bond market may benefit as his government will try to raise taxes to offset some government spending.

In contrast, Wilson believes that if former President Trump wins, the result of the election will be favorable for US economic growth, but unfavorable for the bond market.

From a political perspective, Wilson said that the immigration policy of any government will be closely watched.

He pointed out that Biden's victory would be "more favorable for labor supply and inflation to fall", while Trump's victory would "close the border" and may rekindle concerns about inflation.

Wilson expects that if Trump comes to power, the energy, financial and small-cap stocks will benefit, while large growth companies are expected to benefit from the Biden victory.

Currently, the key is stock picking.

In the current pattern of the US stock market, Wilson said that in the past 12 to 18 months, investors prefer high-quality large-cap stocks that have experienced profit revisions, which in turn has brought alpha returns for these stocks.

"Alpha" is a measure of the performance of active fund managers, indicating whether they have the ability to create returns above the benchmark index.

"Currently, Alpha is not at the industry level, but at the individual stock level," Wilson said. "Profit revisions, whether upward or downward, provide great alpha opportunities for active investors. Many of our institutional clients have captured this opportunity this year."

Typically, companies and analysts tend to revise profit forecasts to incorporate new information about their performance or consider economic changes.

Wilson said that for long-only managers, the current key is stock picking. For macro investors or risk-parity managers, the bond portion of the investment portfolio will continue to be de-emphasized and instead invest in commodities and currencies.

According to data from LSEG IBES, of the 1,379 US companies that announced financial performance as of the week ending June 7, 788 companies had their performance expectations raised, and 591 companies had their performance expectations lowered. Although overall earnings growth for US first-quarter results was still stronger than expected, executives of small-cap stocks have hinted at weakening consumer demand and sluggish loan growth.

Still bullish on large-cap stocks.

Currently, Morgan Stanley still has a buy rating for large-cap companies.

Wilson said that in the current economic and political environment, we should hold stocks with positive profit revisions, which is the advantage of high-quality large cap stocks.

According to LSEG data, of the 496 companies in the S&P 500 index that have announced earnings as of the week ending June 7, 78.6% of earnings performance exceeded analyst expectations, higher than the long-term average of 66.7%.

Wilson said that for stocks, the key is profit growth - which companies' profit and cash flow growth can be faster than inflation, and more importantly, expectations. The risk now is that this fact is well known, so any target that can achieve growth is now expensive."

Editor / ruby