"The collective team came out a little bit more cautious for 2016," said Adam Parker, Chief U.S. Strategist at Morgan Stanley. "We're forecasting low to single digit returns in the U.S. equity market so I think it's a little less unicorns and lollipops than I thought a few months ago," he added.
Parker's concerns include limited margin expansion, U.S. dollar strength and less benefits from lower oil prices than previously expected but notes that this is not the end of the bull market.He adds "this is more of a mid-expansion than end of the rainbow; we still think this could be the longest expansion ever."
"The U.S. consumer is in good shape," said Parker. "One way we like to play it is through credit card companies, we are playing it in a pretty big way." He's recommending overweight positions in mega and large-cap growth stocks,healthcare, defense, financials and consumer discretionary. Parker's sectors to avoid include the interest rate sensitive industrials, energy and staples.
Several big banks have already put out their 2016 S&P 500 targets. Morgan Stanley is right in the middle. Goldman Sachs is looking for less than 1% return year-over-year while RBC is calling for more than 10% return from today's levels.