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Morgan Stanley’s Andrew Slimmon expects an economic slowdown in the U.S. will happen later than many have predicted. “I am convinced what is holding the economy up is that the U.S. consumer still has $1.1 trillion of excess savings that’s excessive [compared] to above pre Covid,” he told CNBC’s ” Street Signs Asia ” on Wednesday. “That’s why the U.S. economy is not rolling over.” “It’s just hard to know when that will be fully spent. And I think that’s when we will hit a slowdown and I suspect it’s coming later than what many people have been predicting,” said the senior portfolio manager at Morgan Stanley Investment Management. Slimmon said although the U.S. Federal Reserve has aggressively raised interest rates, it’s done so for a relatively short period of time and he doesn’t “think we know the ramifications.” Here’s what investors can buy and avoid in the face of that uncertainty, according to Slimmon. Be wary of ‘very large’ stocks He said he would be particularly cautious on “very large” stocks right now, referring to FAANG — Facebook (now Meta ), Amazon , Apple , Netflix and Google (now Alphabet ). “The market was very strong, until this regional banking crisis hit so I think we’re now back to an area where I would be very cautious on these very large stocks because I’m always nervous about companies when they do very well going into earnings season,” Slimmon said. “And I’m not sure the earnings numbers are significantly different. So the only thing that’s changed really is valuation. And that’s gone up a lot,” he said. Regional banks? Not so fast Slimmon said while regional banks have been oversold following the Silicon Valley Bank crisis — and are due for a bounce — he’s still negative on investing in such stocks. “One of the reasons why I’m more concerned is because I think there will be tighter regulations on them head hedging their interest rate, duration exposure. Look, there’s a lot of finger pointing going on right now. And I just think that the government regulators are going to be under pressure to come down harder on the regional banks,” he told CNBC. Stock picks Slimmon said in notes sent to CNBC on Wednesday that he’s choosing to “barbell the risk-on sectors with what we consider to be classic earnings-stable stocks.” According to him, that means stocks in utilities, discount retailing and trash hauling. He named two: NextEra Energy and Waste Management . “Waste Management picks up the garbage and it doesn’t matter whether you’re in a recession now, they will pick up your garbage and they have a kicker — because they’re converting some of that garbage to energy,” Slimmon said. “It’s not a cheap stock, but to me, that’s a defensive stock that you want to own in this environment as well.” He added that he continues to find “attractively priced” companies in both value cyclical and growth names, including those related to infrastructure industrials, refiners, building materials, and semiconductors. “I think what you want to own in your portfolio right now is cyclical stocks that are cheap on valuation in case this rally just continues, and I think it would surprise a lot of people,” Slimmon said. He said he likes semiconductors because valuations are cheap. Slimmon named Pool Corp and Applied Materials .
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