Morgan Stanley's Wilson Sees Earnings-Led Upturn in Industrials

Bloomberg··US·Read original
3▲4 ▼0Impact / 5
Summary · why it matters

Morgan Stanley strategists led by Michael Wilson said the steep drop in US stock valuations since early summer has created a "better setup" for economically sensitive sectors whose fundamental outlook remains robust, with capital-goods names standing out for having among the strongest earnings revision profiles. In a note on Monday, Wilson wrote that "parts of the asset-heavy universe are beginning to look more interesting after recent de-rating." The US stock rally has faltered since mid-August as rising bond yields offset one of the strongest earnings seasons on record, and analysts expect S&P 500 profits to jump 25% in the July-September period versus a year earlier, following a 34% surge in the previous three months, according to data compiled by Bloomberg Intelligence. Wilson said those lofty expectations were "creating a high bar" for companies, adding that "we expect earnings quality, free cash flow and revisions breadth to be the key differentiators." Within industrials, Carlisle Cos Inc., Caterpillar Inc. and General Dynamics Corp. were among the top stocks based on quality, improving earnings revision and a drawdown of more than 10% from June 2026 peaks, the strategists said, noting that broadening backlogs across machinery, fabricated metals and other categories are improving revenue visibility. Goldman Sachs Group Inc. strategists led by Ben Snider said third-quarter earnings growth will be driven by beneficiaries of AI infrastructure spending, with AI monetization and productivity also important themes, though they expect growth to have slowed from the second quarter as cost pressures limit margin expansion and the dollar provides a modestly smaller tailwind to revenue growth.

Impact on assets 5

Financials▲ · 2 stocks
Morgan Stanley
MS
▲ PositiveCapitalrelevance

Morgan Stanley strategists led by Wilson see a better setup for asset-heavy industrials with strong earnings revision profiles.

Goldman Sachs Group Inc
GS
± MixedCapitalrelevance

Goldman strategists' view on Q3 earnings drivers is cited as context, not a company-specific development for Goldman Sachs.

Energy Transition & Power Demand▲ · 1 stocks
Caterpillar Inc
CAT
▲ PositiveCapitalrelevance

Named among top industrials on quality, improving earnings revisions and >10% drawdown, with broadening backlogs improving revenue visibility.

Climate Adaptation & Water▲ · 1 stocks
Carlisle Companies Incorporated
CSL
▲ PositiveCapitalrelevance

Named among top industrials based on quality, improving earnings revision and a >10% drawdown from June 2026 peaks.

Defense & Geopolitical Fragmentation▲ · 1 stocks
General Dynamics Corporation
GD
▲ PositiveCapitalrelevance

Named among top industrials on quality, improving earnings revisions and a >10% drawdown from June 2026 peaks.

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