It's starting to look like the fall of 2016 all over again, though looks can be deceiving.
Eight years ago, in late October, Donald Trump rode a rising wave of momentum that culminated in a presidential win that shocked many. Economically sensitive stocks, including financials and industrials, took off in anticipation of that result and caught fire after it became official.
Although that pivotal autumn may feel like a lifetime ago, strategists at Morgan Stanley recently noted that there are a few key similarities between that backdrop and today's market.
While polls indicate that former President Trump is in a tight race with Vice President Kamala Harris, election markets are telling a different story by assigning Trump a 63% chance of victory, up from 49% at the end of September. Other odds providers are telling a similar story.
Investors are setting up their portfolios for a Trump winIt's not just the betting markets that appear convinced that Trump has the upper hand.
Several parts of the stock market seem to be preparing for another Trump presidency, according to Morgan Stanley. Consumer-focused stocks that would be hit hard by Trump's tariffs have suffered lately, as have renewable energy companies that may do better under Harris.
Meanwhile, cyclical firms also briefly surged alongside Trump, which is reminiscent of 2016.
"Directionally, sector leadership is leaning toward the 2016 playbook to some extent (i.e., Financials and Industrials outperforming)," wrote Mike Wilson, the chief US equity strategist at Morgan Stanley, in a late-October note.
However, investors may want to take that latter trend with a grain of salt.
Industrials have given back all their gains from earlier in the month in the last two weeks, while other cyclical stalwarts like materials and small caps are down in the last month. And although financials have been hot, Wilson thinks that's largely due to better-than-anticipated earnings.
"The magnitude of these sector moves is unconvincing outside of Financials, which have also been the beneficiary of a strong earnings season and improving fundamentals — the primary reason for our upgrade three weeks ago," Wilson wrote.
Further complicating the picture is the fact that this economic climate bears little resemblance to that of eight years ago.
In 2016, the federal funds rate was low but starting to rise since inflation was a non-issue. The opposite is true today, as interest rates are beginning to fall from a relatively high level because inflation is declining, though it's still above the Federal Reserve's 2% target.
"Markets generally welcomed a reflationary playbook in 2016," Wilson wrote. "Inflation was not a headwind to consumers in the way it is now."
GDP growth is also much stronger now than it was in 2016, where components of the economy, like manufacturing, were just emerging from an extended contraction, as Wilson noted. The unemployment rate is also more than a half point lower.
39 quality stocks to buyTrump's win in 2016 coincided with a major rally for the broader market and cyclical stocks, though it's unclear if that would be the case again if political history repeats itself.
Regardless of who's in office, Morgan Stanley outlined a list of 39 economically sensitive stocks that should do well. These companies have an overweight rating from the firm's analysts, along with an above-median quality score relative to their sector peers and positive forward earnings revisions in the last three months.
Below are those stocks, along with the tickers, market capitalizations, price-to-earnings (P/E) ratios, sectors, and industries for each. Names are sorted alphabetically by sector and industry — and within their sector and industry, if applicable.