×
Pro Analysis

Earnings to push market to highs, Morgan Stanley says

A trader works on the floor of the New York Stock Exchange.
Getty Images
A trader works on the floor of the New York Stock Exchange.

Investors should buy stocks as companies are likely to beat earnings estimates due to lowered expectations and drive the market to new highs, according to Morgan Stanley.

"While growth has not been robust in absolute terms, current bottom-up expectations are low," equity strategist Adam Parker wrote in a note to clients Tuesday. "We think modest upside to these expectations can drive the S&P 500 to record highs."

Parker cited how third-quarter earnings expectations for all 11 sectors have been lowered this year. His forecast for 2016 S&P 500 earnings per share is $122.70 versus the Wall Street consensus of approximately $118.

"While there is certainly the chance our top-down forecast is too high, we have a strong directional bias for earnings to begin to trend higher this month. ... Our main message heading into this earnings seasons is that corporate results have the potential to grow modestly, and that earnings could prove to be above expectations for the next quarter or two," he wrote.

The strategist has overweight ratings on the financials, health care, utilities and consumer discretionary sectors. On the flip side, Parker rated technology, energy and consumer staples as underweight.

Here are five Morgan Stanley overweight-rated stock ideas in the financials and health care sectors.