Last year's 'rolling bear market' is now a 'rolling bottom': Morgan Stanley

  • Cyclical stocks are better priced than defensive stocks as Wall Street pulls away from bear market territory, but risk is still high, Morgan Stanley's Michael Wilson says.
  • "Our view is that the rolling bear market that happened last year is now going to be a rolling bottom," he says.
  • Morgan Stanley is betting on semiconductor, homebuilder, bank and machinery stocks, he says.

Morgan Stanley is shifting its focus from defensive stocks to cyclical stocks as Wall Street starts pulling away from bear market territory, chief U.S. equity strategist Michael Wilson told CNBC on Tuesday.

Defensive stocks were ideal as traders worried that growth was slowing, and now cyclical stocks look to be priced better, he said, but risk still remains high.

"Our view is that the rolling bear market that happened last year is now going to be a rolling bottom," Wilson said on "Fast Money." "So not everything is going to bottom at the same time. In my guess, it's going to be first in, first out: The stuff that led us in will probably lead us out."

After the Federal Reserve hiked the interest rate in December, Wilson warned investors not to sell or buy the dip during the "rolling bear market," which rotates from one sector to another.

Wilson sees more hurdles in 2019, including earnings revisions, Fed uncertainty, and technical conditions. His firm has left its S&P 500 price target unchanged at 2,750 for 2019, the same as last year.

"All of the things that we've been worried about, the market's been worried about all year, are now starting to come to the fore," he said Tuesday.

Morgan Stanley, Wilson said, is now betting on semiconductor, homebuilder, bank and machinery stocks. Wilson likes Skyworks, even though the Apple supplier issued weak first-quarter guidance Tuesday.

After the first five trading days in the new year, the S&P 500 closed Tuesday up about 4 percent, since last Wednesday, which could set the market up for a good 2019.