The market will rally into the year end, but it won’t be led by mega-cap tech stocks, according to Morgan Stanley’s Andrew Slimmon. Stocks broadly rose in October, ending the month well in the green . The major averages on Wall Street closed the first week of November with losses, although stocks rallied again on Friday. “Despite [the] Fed Chair throwing cold water on the concept of a Fed pivot , I still believe the equity market will rally into year-end,” Slimmon, senior portfolio manager at Morgan Stanley Investment Management, told CNBC’s “Street Signs Asia” Friday. The primary reason for this will be the U.S. mid-terms this week , according to Slimmon, with history showing that stocks tend to rise in the final months of midterm election years . He suggested that the sitting party tends to come under pressure and recognizes that things have to change if it wants to get re-elected in the presidential elections, which can give stocks a boost. ‘Final holdout’ being taken down There is one sector that could buck the rising trend, however: Big Tech. “The final holdout of tech is finally being taken down — mega-cap tech. Why? Because they are no longer secular growth stories … they are the economy,” Slimmon said. “These stocks will continue to weaken further. Estimates are too high.” He added that these Big Tech stocks “floated right through” the 2008 global financial crisis because they were still gaining market share. Now, however, they can’t gain market share, he added. “I don’t think they recognize how cyclical they have become.” Three stock picks The October rally “appears different” from the summer’s, Slimmon said. He noted that this time, the bounce has been led by value stocks, while growth stocks drove the summer rally. The outperformance in value stocks has been pretty broad, covering energy, financials and industrials, he said. “While early, we think it makes sense to begin to nibble on early-cycle stocks … consumer discretionary names that have been crushed,” Slimmon added. His stock picks are: Home Depot , equipment rental firm United Rentals and financial services firm Ameriprise .
