Morgan Stanley strategists said that falling prices in some sectors of the US stock market have made industrial stocks and some other cyclical sectors more and more attractive. According to the team led by Michael Wilson, the breadth of adjustments to earnings expectations will be a key differentiator in the upcoming earnings season. They noted that analysts expect third-quarter earnings per share to grow 27% and sales to grow 10%. “Having said that, expectations were raised before entering the quarter, thus setting a higher threshold,” they wrote in the report. More broadly, they believe that another surge in bond volatility is a risk facing the stock market, but “a period of more stable yields will be enough to ease valuation pressure.”

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