STT - Morgan Stanley's picks banks retail brokers for a rising rates environment

With the Federal Reserve signaling a March interest rate increase, Morgan Stanley analysts Betsy Graseck and Michael Cyprys list their bank and retail broker picks for a rising rates environment. "You need to be Overweight banks and diversified financials a the 10-yea yield rises," they wrote in a note dated Feb. 4. In the past 10 years, banks and diversified financials stand out as the only two sectors that have outperformed Top 100 equities in periods of rising nominal 10-year yields, rising breakeven 10-year yields, and rising real 10-year yields, the analysts said. "This is important. Our rates strategist is expecting real yields to rise from -58bp today to -10bp by YE22, below the pre-Covid mid-teens levels," Graseck and Cyprys said. And they wouldn't be surprised if that's understating the case, against the backdrop of increased on-shoring of capex, inflation, and higher nominal GDP of 8.4% in 2022 and 5.4%

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Morgan Stanley's picks banks, retail brokers for a rising rates environment