Morgan Stanley's investing strategy for 2016

Traders work on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders work on the floor of the New York Stock Exchange.

The big question for 2016 is how does one invest as the Federal Reserve steadily increases interest rates.

Morgan Stanley chief U.S. equity strategist Adam Parker told clients on Dec. 21 this rate hike cycle is different, so it requires a distinctive strategy:

"We have been arguing for some time that the historical playbook for interest rate hikes doesn't apply. Why? The historical playbook suggests we own energy, metals and mining, low-quality stocks and cyclicals, and avoid financials and consumer discretionary following the first rate hike. This playbook unfolded historically because the Fed was moving the front end to cool off inflation and strong growth. How could that possibly apply to today's regime? It certainly doesn't seem like we need to cool off strong growth in the energy sector."

Here is what the firm recommends to buy and avoid instead...


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