'We are a long way from the top': Morgan Stanley’s Slimmon picks stocks to ride the rally
Have markets hit "peak pessimism"? Morgan Stanley Investment Management's Andrew Slimmon says that stocks are set to rally further. The economy is proving to be "far more resilient" than what the doomsayers had projected, says managing director and senior portfolio manager Slimmon. "In terms of … peak pessimism, people were just way too negative going into this year, and it doesn't take much good news — with so much pessimism — to surprise on the upside," he told CNBC's "Squawk Box Asia" Thursday. "With the [ S & P 500 ] up 8% [year-to-date], some of that pessimism has started to recede but we are a long way from the top in this rally," he added in notes sent to CNBC. Stocks went through a difficult year in 2022, with the S & P 500 plummeting nearly 20%. Slimmon predicted that the U.S. Federal Reserve will raise rates a few more times, before pausing. By the time the Fed is done raising rates, he said, it will be "too late for stocks" as markets will have already priced it in. "And so that's why I very much believe that the good returns for equities will be in the first half of the year, less likely in the second half," he added. Stock picks Although growth stocks such as tech have bounced back this year, Slimmon says the "real opportunity" is in cyclical stocks. "They were priced as if … we're going to have a recession in the first quarter — that was the total consensus view by strategists," he said. "It's turned out to be dead wrong." He favors financials, materials and industrials as they trade at "much lower" multiples and are having a good earnings season. Financials are also set to finally benefit from a higher rate environment, he added, while there has been a "very strong" housing cycle in the U.S. Slimmon named three stocks to consider: U.S. bank First Republic , swimming pool and outdoor supplies provider Pool Corporation , and Ameriprise Financial . — CNBC's Michael Bloom contributed to this report.