The **HALO trade** is proving to be more than just a fleeting trend, with Morgan Stanley indicating that the boost for hard assets is likely to persist throughout 2026. This shift is seeing investors favouring sectors like energy and materials over the previously dominant tech giants.
It’s noteworthy that the Magnificent 7 stocks are underperforming, while traditionally stable sectors like consumer staples are gaining ground. Concerns about the justification of massive AI spending by companies like Meta, Microsoft, Alphabet, and Amazon, as well as the potential impact on chipmakers like Nvidia if that spending slows, are contributing to this divergence. Software stocks are also facing challenges due to fears of AI-driven disintermediation.
The question then arises: is the outperformance of sectors like energy (up 22%) and materials (up 18%) simply a reflection of their non-digital nature? Some analysts, like Jay Woods of Freedom Capital Markets, caution that such sector leadership can be indicative of market tops. However, Morgan Stanley’s Mike Wilson believes the **HALO trade** has staying power.
Understanding the HALO Trade
The **HALO trade**, characterized by buying hard/heavy assets with low obsolescence, has propelled companies like Coca-Cola, Caterpillar, and Johnson & Johnson to record highs. The concern is that a resurgence in AI-related tech could derail this trend. However, Wilson argues that several factors support the continued outperformance of **HALO trade** beneficiaries.
Wilson points out that the outperformance of HALO stocks, particularly in multi-industry and materials/metals, is not a recent phenomenon. The high capex-to-sales factor has been a driving force since mid-2025, underpinning this investment theme.
“Multi-Industry remains the best pure-play across these themes.”
Three key drivers are expected to sustain this trend through 2026. First, a new business and earnings cycle began in April 2025, with median stock capex growth at 10%, the highest since 2023. Second, the AI buildout structurally benefits materials and energy groups, as well as companies like Caterpillar. Finally, policy factors, including capex tax incentives from the One Big Beautiful Act and the administration’s focus on rebalancing the economy towards investment, are supportive.
Sectors Benefiting from the HALO Trade
Wilson identifies multi-industry stocks as a prime beneficiary, citing Honeywell, Dover Corporation, and Johnson Controls as examples. These conglomerates are well-positioned to capitalize on the trends driving the **HALO trade**.
Furthermore, Wilson highlights regional banks as an underappreciated winner due to an expected inflection in commercial and industrial (C&I) loan growth. The State Street SPDR S&P Regional Banking ETF has already seen a 10% gain this year.
The Broader Market Context
U.S. stock-index futures are currently lower, while benchmark Treasury yields are dipping. The dollar index is up, and oil prices are rising. These market dynamics reflect the ongoing shifts and uncertainties influencing investment strategies. Investors should closely monitor these trends to navigate the evolving landscape.
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The enduring appeal of hard assets
The **HALO trade** hinges on the idea that tangible assets offer greater stability and value in an environment of rapid technological change and potential economic uncertainty. While the allure of high-growth tech stocks remains, many investors are seeking a more balanced and diversified portfolio that includes exposure to sectors with proven resilience and intrinsic value. The Morgan Stanley analysis suggests that this trend is likely to continue, making hard assets an essential component of a well-rounded investment strategy.
Source: MarketWatch
