Morgan Stanley screens for quality cyclicals as economic surprises, yields back upgrade

Morgan Stanley followed-up its recent upgrade of cyclical stocks to overweight with a screen of quality cyclical stock names, and said it has grown in confidence of its upgrade.

The strong September payrolls report prompted the investment firm last week to upgrade cyclicals to overweight relative to defensives after taking profits in the latter group.

“Further stabilization in the economic surprise index should support quality cyclicals even if it comes amid higher yields,” Mike Wilson, chief U.S. equity strategist and CIO, at Morgan Stanley said in a note Monday.

He said the rates market is confirming its upgrade of cyclicals vs. defensives as that market tends to hold onto growth risks longer than the equity market. “Thus, the recent move higher in yields following resilient data is also indicative of the idea that bond market pricing is shedding some of that growth concern,” Wilson said.

Sentiment as well as positioning in Cyclicals is light, particularly in the Financials sector, which it upgraded to overweight last week in part on a better environment for loans in 2025.

The screen of quality cyclicals includes companies in the top 1,000 stocks by market cap and have overweight ratings at Morgan Stanley, and are followed by their sectors:

• Alphabet – Class A shares (GOOGL) – Communication Services
• Spotify (SPOT) – Communication Services
• The Trade Desk (TTD) – Communication Services
• Burlington Stores (BURL) – Consumer Discretionary
• Gap (GAP) – Consumer Discretionary
• Wayfair (W) – Consumer Discretionary
• DoorDash (DASH) – Consumer Discretionary
• Yum Brands (YUM) – Consumer Discretionary
• Cheniere Energy (LNG) – Energy
• Devon Energy (DVN) – Energy
• Diamondback Energy (FANG) Energy
• Marathon Petroleum (MPC) – Energy
• Nov Inc. (NOV) – Energy
• Occidental Petroleum (OXY) – Energy
• Schlumberger (SLB) – Energy
• Bank Of America (BAC) – Financials
• East West Bancorp (EWBC) – Financials
• Huntington Bancshares (HBAN) Financials
• Nu Holdings (NU) – Financials
• Regions Financial (RF) Financials
• Wells Fargo & Co. (WFC) Financials
• Ally Financial (ALLY) – Financials
• Blackstone (BX) – Financials
• Goldman Sachs (GS) – Financials
• Mastercard (MA) – Financials
• MetLife (MET) – Financials
• Dentsply Sirona (XRAY) – Health Care
• Idexx Labs (IDXX) – Health Care
• Avantor (AVTR) – Health Care
• Halozyme Therapeutic (HALO) – Health Care
• Iqvia Holdings (IQV) Health Care
• Zoetis (ZTS) – Health Care
• Cummins (CMI) – Industrials
• Eaton (ETN) – Industrials
• Rockwell Automation (ROK) – Industrials
• TransUnion (TRU) – Industrials
• Nvidia (NVDA) – Information Technology
• Atlassian (TEAM) – Information Technology
• Autodesk (ADSK) – Information Technology
• Fortinet (FTNT) – Information Technology
• HubSpot (HUBS) – Information Technology
• SentinelOne (S) – Information Technology
• Unity Software (U) – Information Technology
• Apple (AAPL) – Information Technology
• Eastman Chemical (EMN) – Materials
• Linde (LIN) – Materials
• Sherwin-Williams (SHW) – Materials
• SBA Communications (SBAC) – Real Estate