SINGAPORE (Reuters) – The stock market is set to rise further and investors are still underestimating the scale of the global recovery from the coronavirus, investment bank Morgan Stanley said. in a forecast.

“While the past four months have been exceptional, we believe this cycle has been and will remain more ‘normal’ than we thought,” said Andrew Sheets, the bank’s chief cross-asset strategist.

“We think equities and credit will be slightly higher and tighter over the next 12 months,” he said. The bank forecasts the S&P 500 index to hit 3,350 and the U.S. 10-year yield to hit 1.3% by mid-2021.

The call, made in a note dated Sunday and distributed Monday, comes as global markets are retreating from a sharp rally that has sent global stock prices up about 36% from March lows. (MKTS/GLOB)

The S&P 500 <.SPX> closed Friday at 3,041.31 points and the US 10-year yield last stood at 0.6625%. (.N)(US/)

Morgan Stanley analysts are advising clients to take long positions in U.S. small-cap and financial institutions, the euro and emerging market currencies such as the Indonesian rupiah and Indian rupee, and to add slightly more risk to their credit portfolios.

“We recommend broad rotation into cyclical stocks and value into global equities.”

(Reporting by Tom Westbrook; Editing by Anil D’Silva)