Morgan Stanley says the falling US dollar could fuel US stock outperformance

Despite rising concerns that U.S. assets may lose their edge to international markets, Morgan Stanley sees the recent sharp decline in the dollar as a potential lifeline for U.S. equities.

• “The weaker dollar should benefit large cap U.S. relative EPS revisions (particularly versus Europe and Japan)”
• “From a global standpoint, we recommend favoring U.S. over international equities.”

Morgan Stanley expects the S&P 500 to trade between 5,000 and 5,500 until major catalysts — such as a U.S.-China tariff deal, interest rate cuts, lower bond yields, or improving earnings revisions — materialize.

MS recommends investors stay focused on quality U.S. large-cap stocks:

• “We remain in a late cycle backdrop where both quality and large cap relative outperformance should continue,” he wrote.
• “uncertainty persists”
• “We do think it makes sense to pick spots in high quality cyclicals that have already discounted a material slowdown in both macro conditions and earnings.”

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