Morgan Stanley's chief stock strategist stated that Wall Street expects US stocks to rise again in 2025, but traders should follow a specific investment strategy, as the outlook for US stocks is more complex than it appears.

Morgan Stanley's Chief Investment Officer and Chief US Stock Strategist Mike Wilson indicated that investors should adopt a barbell investment strategy. This approach refers to a portfolio that balances high-risk assets with low-risk assets.

Wilson recently mentioned that this strategy is ideal for investors looking to profit in areas of higher market risk while hedging against potential losses. Given the uncertainty looming over the market as it enters the next year, this strategy should become the focus of investors' attention.

Wilson pointed out that this year's market dynamics have been uneven, with high-quality large-cap stocks, cyclical stocks, and low-quality stocks all experiencing gains. Given the fluctuating expectations regarding inflation, economic growth, and the Federal Reserve's interest rate cuts, these types of stocks have performed well at different times.

"Going into next year, I believe this pattern will continue. Currently, Holding large-cap stocks, high-quality cyclical stocks, and growth stocks is reasonable," Wilson stated.

Wilson also highlighted the potential catalysts and risks for US stocks next year, while the barbell strategy may be particularly well-suited to address these situations.

Among the positive catalysts, Wall Street is focusing on the deregulation and corporate tax reductions during Trump's second term, which could drive corporate earnings growth. Wilson added that the profit prospects for large-quality stocks are particularly bright.

On the other hand, economic risks are surrounding some other policies proposed by Trump.

For example, although the tariffs imposed by Trump during his first term did not lead to a significant rise in inflation, experts indicate that his tariff plan this time is much broader, which could lead to soaring inflation next year.

Recent risks also include Trump's plan to expel millions of immigrants, and economists state that this could hit the labor market. Wilson remarked that the proposed layoff plan from the government efficiency department could also negatively impact economic growth in the short term.

"Given the uncertainty surrounding the sequence and execution of policies such as tariffs, immigration, and the Federal Reserve's interest rate cuts next year, we suspect that the performance of U.S. stocks in the first quarter of next year will be more conservative than what we observed this fall," he added.

Wilson stated in a recent interview with Bloomberg that the risk of a recession in the USA has not completely disappeared. He pointed out that the USA is in the later stages of an economic expansion cycle, and the economy is still under pressure from rising interest rates and some signs of strain among small businesses and consumers.

"I don’t think the risk of a hard landing has been eliminated," Wilson said. "That’s why we are trading within a narrow range again. People are favoring Large Cap Stocks. We don’t want to fully Shareholding Small Cap Stocks or low-quality stocks; we don’t expect significant increases next year; everything has changed."

Market forecasters generally expect that,$S&P 500 Index (.SPX.US)$The increase in 2025 will be more moderate, as the benchmark Index achieved double-digit returns for the second consecutive year in 2024.

Wilson, who was a famous Put on Wall Street in 2022 and 2023, raised the expectations for Stocks. Morgan Stanley predicts that the S&P 500 Index will close around 6500 points next year in 2025, which means the Index will increase by more than 7% from current levels.

Editor/rice