The stock market is teetering toward a correction, and investors should burrow down in some less volatile stocks, according to Morgan Stanley. The firm's strategists, led by Michael Wilson, said Monday in a note that the market rally showed signs of being exhausted, adding investors should shift to defensive sectors. "Market breadth has been deteriorating for months and is just another confirmation of the mid-cycle transition, in our view. It usually ends with a material (10-20%) index level correction," the note said. "More specifically, we think it is foreshadowing a significant growth deceleration in earnings and the economy that may feel worse than most are expecting." Measures of market breadth — such as the percentage of stocks rising each day or those making new all time highs — have been cited as areas of concern by top Wall Street strategists in recent months, even as the major indexes have set new records. The Invesco S & P 500 Equal Weight ETF, for example, is roughly flat over the past two months. Morgan Stanley's strategists upgraded the defensive consumer staples sector to overweight while downgrading the cyclical materials sector to neutral. "Consumer Staples are the epitome of boring, but boring can be beautiful if the broader market begins to falter," the note said. To go along with the upgrade on consumer staples, Morgan Stanley added Mondelez to its fresh money buy list. The stock is up about 10% for year, lagging the broader market. The Consumer Staples Select SPDR is up 1.5% so far this month as the S & P 500 is little changed. The three major averages all lost ground last week, with the tech-heavy Nasdaq Composite underperforming the S & P 500. Stock futures on Monday pointed toward another decline , led by stocks tied to the economic reopening. —CNBC's Michael Bloom contributed to this report.
People walk along Wall Street in the rain on July 08, 2021 in New York City.
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The stock market is teetering toward a correction, and investors should burrow down in some less volatile stocks, according to Morgan Stanley.