Investors may want to look somewhere other than tech for safety, according to Morgan Stanley’s Mike Wilson. Tech is the best-performing sector this year, up more than 20% and outpacing the S & P 500 ‘s 7% advance. Recently, tech stocks got a boost after bond yields fell amidst volatility in the banking sector. Investors have also been turning to tech as they look for safety and stability in a turbulent market. However, Wilson, the chief U.S. equity strategist at Morgan Stanley, warned Monday that the tech sector’s recent outperformance may not last, noting the space may not be as safe as investors think. “On the defensiveness point, our work suggests that Tech is actually more pro-cyclical and bottoms coincidently with the broader market in bear markets due to its beta of just over 1 and its high correlation to the business cycle,” Wilson wrote in a note Monday. “We advise waiting for a durable low in the broader market before adding to Tech more aggressively as the sector typically experiences a period of strong outperformance post trough—a time when its cyclicality works in its favor on the upside. XLK .SPX YTD mountain Returns for the Technology Select Sector SPDR Fund ETF (XLK) compared to the S & P 500 in 2023 Instead, the widely-followed strategist thinks that traditional defensive stocks will be a safer play for investors. “We broadly view traditional defensives (Staples, Healthcare, Utilities) as having the better risk/reward profile at current levels particularly with Tech relative performance back to all time highs and breadth remaining weak,” Wilson said. Morgan Stanley looked for defensive stocks to own in a bear market. The firm named public utilities holding company CenterPoint Energy in its “Fresh Money Buy List” as a high-potential defensive stock in the current market. Consumer staples companies Coca-Cola and Colgate-Palmolive were also chosen as safer trades. Health insurance company Humana was also named as a smart defensive trade. Shares of CenterPoint Energy dropped 1.7% in 2023. Coca-Cola and Humana are also down more than 1%. Meanwhile, Colgate-Palmolive shares have declined 4% year to date. Wilson has been one of the biggest bears on Wall Street over the past year. His 2023 S & P 500 target of 3,900 is also the third-lowest in CNBC Pro’s Market Strategist Survey. —CNBC’s Michael Bloom contributed to this report.
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