Go risk-on, 'keep the faith, trust the recovery' in 2021: Morgan Stanley

Morgan Stanley strategists said an expected “V-shaped” economic recovery, greater clarity on Covid-19 vaccines and continued policy support offer a favorable environment for stocks and credit next year.

In an outlook for 2021, a team including Andrew Sheets recommended investors overweight equities and corporate bonds ag­ainst cash and government debt, and sell the US dollar. Volatility is set to decline, and investors should be “patient” in commodity markets, the strategists said.

“This global recovery is sustainable, synchronous and supported by policy, following much of the ‘normal’ post-recession playbook,” they wrote. “Keep the faith, trust the recovery.”

A gauge of global stocks headed toward a record Monday amid optimism that the expected roll-out of vaccines and additional US fiscal stimulus will bolster the world economy. Still, skeptics argue the short-term outlook is challenging as nations resort to lockdowns to fight a resurgence in virus cases and lawmakers bicker over the size of US relief spending.

Morgan Stanley joins JPMorgan Chase & Co and Goldman Sachs Group in painting a positive outlook for equities. JPMorgan strategist Marko Kolanovic said US election results create a bull case for markets, while David Kostin at Goldman Sachs expects society to normalise gradually next year.

The Morgan Stanley team doesn’t expect a smooth path upwards and noted that significant challenges remain. Risks include a worse-than-expected Covid-19 winter wave, and a return to austerity in the longer term, according to the note.