Morgan Stanley Investment Management’s Andrew Slimmon believes markets are set for a “strong rally” by the end of the year. He told CNBC’s ” Street Signs Asia ” on Tuesday that he believes the S & P 500 will be “closer” to 5,000 by then. If it reaches 5,000, that’s an upside of nearly 13% from Monday’s close of 4,433. “As we get closer to the end of the year, the pain of being underweight equities, and the resultant lack of performance is going to intensify forcing positive fund flows,” said Slimmon, who is managing director and senior portfolio manager at the firm. August has been a dismal month for stocks — a far cry from the rally earlier this year. “Year-over-year quarterly earnings are going to inflect from negative to positive after Q3. Historically, this is greeted positively by equities,” he added. Slimmon also pointed out there will be a “huge amount” of spending on U.S. public works in the fourth quarter that’s set to be “very bullish” for stocks. That includes investments introduced by the Inflation Reduction Act, the Chips Act and the Infrastructure Spending Bill. “Positioning by investors is overly bearish. It’s been the story all year — sentiment has gone up but fund flows haven’t turned positive yet. And I hear all the time: ‘why should I buy equities when I can get 5% in fixed income’ and that that is certainly true,” he said. But while 5% in money markets look attractive, it could get painful for investors who are under-allocated in stocks if markets rise 15% to 20%, Slimmon said. Stock picks Slimmon is positive on three stocks to buy right now: Alphabet , industrial equipment rental firm United Rentals , and building materials firm CRH . “I think investors will chase into the Magnificent Seven,” he said, referring to Apple , Amazon , Alphabet, Meta , Microsoft , Nvidia and Tesla — which made massive gains this year. He added that they’ve been mostly reporting great quarters and are perceived as being less exposed to geopolitical risks. “As much as these companies have had a very good year to date, they’re still below where they ended 2021 – Nvidia’s the exception. These companies are lower today than where they ended 2021 because last year was worse than the rally year today,” he said. Analysts covering Alphabet give it potential average upside of 14.5%, according to FactSet. As for United Rentals and CRH, Slimmon said they’re set to benefit from the increased spending on public works. Analysts covering United Rentals and CRH give them potential average upside of 10% and nearly 18%, respectively, according to FactSet. — CNBC’s Michael Bloom contributed to this report.