Morgan Stanley’s Wilson says the recovery is happening faster than normal. Here’s how to play it

Published Mon, Apr 5 20216:20 PM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

The recovery from the coronavirus -induced recession is taking place much quicker than after previous economic slumps in history, Morgan Stanley 's Mike Wilson told CNBC on Monday. For investors, Wilson contended, that means it's time to reshuffle portfolios to keep pace. "What we see in front of us is a cycle that's progressing at about two times as fast as it normally does, which means we're going to be moving from the early-cycle phase of the recovery to the mid-cycle part of the recovery," the firm's chief U.S. equity strategist explained in an interview on "Closing Bell." As a result of that progression, Wilson said one of the key characteristics his team believes will return to favor is "higher-quality stocks." "They've really underperformed, which is typical in the early cycle part of the recovery. Now the quality factor is going to start to work again," said Wilson, who also serves as chief investment officer for Morgan Stanley. On a sector level, Wilson said, investors should look to consumer staple stocks instead of consumer discretionary names, which he described as a "classic" example of what works during the initial phases of a recovery. Consumer staples include names tied to household goods and food. Meanwhile, the consumer discretionary category includes companies involved in entertainment, leisure and cars. "Now everybody is bullish on those because we're going to reopen [from the pandemic]," Wilson said. "But the market knows that. We've had historical outperformance in the last 12 months, so it's time to rotate away from those types of securities and into areas that have higher quality and staples fits the bill in that regard." Wilson noted his team's upgrade of consumer staples took the sector from underweight to neutral. Consumer staples are considered sensitive to interest rate moves. "We'd been underweight staples because ... we expected rates to move up. Beginning of the year, we were very out of consensus on where we thought rates would go, but that adjustment has happened now," Wilson said. "We think there's more to go, but the market can no longer ignore rates and they've punished these stocks." While suggesting there could be more pain for some high-multiple growth stocks, Wilson said that in general, investors are no longer caught off guard by rising bond yields. "The rate shock is no longer a shock anymore. It's a 'known' known at this point and now it's just the pace and the direction and how fast we get there," he said.

Mike Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley.

Adam Jeffery | CNBC

The recovery from the coronavirus-induced recession is taking place much quicker than after previous economic slumps in history, Morgan Stanley's Mike Wilson told CNBC on Monday.

For investors, Wilson contended, that means it's time to reshuffle portfolios to keep pace.

"What we see in front of us is a cycle that's progressing at about two times as fast as it normally does, which means we're going to be moving from the early-cycle phase of the recovery to the mid-cycle part of the recovery," the firm's chief U.S. equity strategist explained in an interview on "Closing Bell."