June 10, 2025 • 8 mins
Morgan Stanley Chief Equity Strategist Mike Wilson says unless the US trade war with China re-escalates in a negative fashion, trade issues won't be enough to take the momentum out of stocks. In a note, Wilson reiterated his 12-month price target of 6,500 points, implying gains of about 8% from current levels. Wilson speaks with Bloomberg's Jonathan Ferro.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news, basically One Wall Street.
At the moment, might Wilson of More Good Stand be
taken a very constructive view on things, writing the rates
of changes turned for the better on most fronts. This
keeps us positive on us sequities on a twelve month basis,
we expect pullbacks to be shallow and unsatisfying to those
looking for a fatter pitch. Mike joined us now for
(00:24):
more Mike, good morning, Good morning John. I love the
reason no don't find SI. So let's talk about don't
find one? What elements of the market move shouldn't we fight?
Speaker 2 (00:31):
Well, it's kind of what we're just talking about.
Speaker 3 (00:32):
I mean, the headlines remained very noisy and uncertain, and
I think you know this has been the case for
the whole year. Our view, as you know, has been
a bit different. We came in thinking the first half
would be tougher and the rate of change and a
lot of things like earnings, re visions and some of
the headline would be negative. And in fact that what
we think happens. That all got priced in the week
after Liberation Day, right, it was violent, it was a
(00:53):
de leveraging and so now as we look at the
data itself, it's all inflected higher and so, you know,
don't everything, but ignoring the headlines is probably a good
strategy and just focus on the data has turned up
for the most part. And I think, you know, I
don't know where the trade negotiations are going. Nobody does,
but I think it's very unlikely we're going to go
back to where we were, you know, a month and
a half ago, like we bottomed in terms of the
(01:16):
pain of that initial you know, announcement and how bad
those tariffs were. So unless it really re escalates in
a negative fashion, I don't think the trade issues is
even going to be enough to kind of take the
momentum out.
Speaker 2 (01:28):
Of this market right now.
Speaker 1 (01:29):
You know what the bad view sounds like. They would
say that maybe some of the data, some of the
earnings we've seen have been flattened by pull forward and
we'll get the bill for that later this summer. Do
you think we're priced for that kind of slowed down,
that weakness we could see in a summer months.
Speaker 2 (01:40):
That's probably right.
Speaker 3 (01:41):
And when we had that view too, there was a
pull forward and Q one Q we're not being better
than they feared because you know, the numbers came down
a bunch.
Speaker 2 (01:47):
I think the second.
Speaker 3 (01:48):
Quarter, though, is expected now to be weaker, so that's
going to be the key. I think the biggest risk
for the market's going to probably be either rates as
we've talked about in the past, you know, north of
four and a half percent.
Speaker 2 (01:57):
Or we do go an earning season.
Speaker 3 (01:59):
It's not as you know, people were hoping for, and
we have maybe a five to seven percent correction, but
that's not what people kind of want. People want a
ten you know, another ten to fifteen percent draw down
to get better, to get more exposure, and I just
don't think you're going to get that. I mean, I've
seen this a million times. You want it, but you're
just going to have to have a shorter trigger finger.
Speaker 4 (02:19):
Well, you had seen retail largely buying the dip that
that's who participated when you got those ruptures in April.
If we're not going to get dips like that anymore,
what is the willingness of institutions to continue to put
money to work right now, especially they didn't even buy
the pass dips we saw.
Speaker 3 (02:34):
Yeah, I think institutions have re risk, but there's still
more to go. The one the area that I think
that that you have to watch is the is the
systematic strategies the CTAs that price willmentum money. We saw
almost five hundred million dollars of de leveraging in that
period of early March through mid April, and they've re
risked maybe thirty forty percent of that. So that's another
(02:55):
bid that's sort of it's not fundamentally driven, it's just
price momentum.
Speaker 2 (02:59):
So that's that's going to be kind of underlying bid.
Speaker 3 (03:00):
And then I think, you know, most institutions have re
risk but one thing I haven't talked about yet is
it's people are still making the quality bet and we
agree with that, meaning this isn't the beginning of a
news cycle. It's once again an extension of the existing cycle.
And the Fed's probably going to be cutting at some
point later this year early next year, and that really
behooves the large cap quality equities.
Speaker 4 (03:23):
Does it behoove companies specifically who can also weigh out
some of the tariff uncertainty because this has been a
big part of the narrative. Right no one's making decisions.
Cap X is largely stalled unless your tech is there
an element where even though we don't have terarras resolved
that you get companies who just get on with it
and start to put capital to work.
Speaker 2 (03:41):
Yeah, they got to run a business.
Speaker 3 (03:42):
And that's another reason why large cap quality businesses can
do this. They can mitigate some of these risks, whether
it's terriffs, whether it's you know, maybe a government cutting
back on certain types of spending. And one of the
things that is getting through this tax build that I
think is still underappreciated is the tax incentives for.
Speaker 2 (03:57):
Cap X and R and D spending.
Speaker 3 (03:59):
We think that could add three to five percent to
earnings growth or cash earnings for these large multinationals. That's
a big tail in addition to the weaker dollars. So
there's just a lot of tailwinds I see from an
earning standpoint.
Speaker 2 (04:10):
And this is almost a perfect.
Speaker 3 (04:12):
Environment to climb the wall of worry because the economic data,
the political geopolitical data is messy, it's noisy, it's scary sometimes,
but as long as the revision factors for earnings are
heading north, it's just hard for stacks to go down.
Speaker 1 (04:24):
When you say capecks, I just think of a handful
of tech companies. Do you think it goes beyond just
tank leadership.
Speaker 3 (04:29):
Oh absolutely. I think this is about capital goods. I
think this is not just about AI capbacks. Also, one
thing to just keep in mind, the IT cappacks that's
been good the last several years has really been concentrated
just in AI. Okay, the traditional kind of upgrades you
see in the enterprise and in the household have not
been happening because there was a giant pull forward, remember
(04:50):
in twenty twenty and twenty twenty one for work from home.
So if you actually look at the IT capback cycle
from twenty two to twenty four, it was kind of
a software session. And that's another part of our thea
We've been going through these rolling recessions and look, to me,
the big, the big catalyst to keep in mind for
broadening out is going to be when the Fed starts
to signal they're more dubbish. I don't know when that's
going to be, but my guess is sometime in the
(05:12):
third Court they're going to start to signal that, and
that's when they're going to get more broadening out to
the lower quality parts.
Speaker 1 (05:17):
Is the why matter? Do we need it because inflation
is coming in? Or is it going to be because the
labor market is cracking.
Speaker 3 (05:23):
Well, I mean, look at last fall, it was both right,
the labor market was cracking last summer. As soon as
they signaled they were ready to step in, the market
went up anyway. So that's why I mean, I actually
think of recession if we finally get the you know,
broad recession labor cycle, I don't think the equity markets
are going anywhere near the April lows because the FED
will be able to act quickly, and we're like Pavlovian, right,
(05:44):
And if retail is buying when the FED wasn't even.
Speaker 2 (05:46):
Cutting, if they are cutting, there's going to.
Speaker 3 (05:49):
Be a big bid there. So look, there's always risks
in the market. There's always something to be worried about.
There's always things to bearishan and there seems to be
bullish on and.
Speaker 2 (05:56):
That's our job.
Speaker 3 (05:56):
And I think, you know, this year we've navigated that
pretty well, being in the right place. And I think
we're going to continue to have to shift what we
want to own, not so much how much you want
to own.
Speaker 1 (06:04):
You've acknowledged the one thing that could be a handwind
for equities as interest rates. He wrote about it over
the weekend. What is it about four fifty that's challenging
to this equity market because based on the running we've
seen over the past few weeks, we don't see much
of a challenge.
Speaker 2 (06:17):
Well, it's stabilized at four fifty.
Speaker 3 (06:18):
So we've identified this level like almost two years ago,
and it's been like a charm. I mean, as soon
as you cross four to fifty in the upside, the
correlation between stocks and rates goes negative and vice versa.
Speaker 2 (06:30):
Now, I do think that we kind of went.
Speaker 3 (06:32):
To four seventy in the April period and then they
calm down again.
Speaker 2 (06:35):
I think the market is getting comfortable that they have
enough tools.
Speaker 3 (06:39):
Because you know, the Treasury Secretary has talked about that
to keep it four to fifty or below if they
need to, And I think we talked about this last
time I was here. Four to seventy five is like
the worst place because that's where markets get really nervous.
Five percent I actually get bullish because then I know
that they're going to come and intervene with either liquidity
injections or they're going to use these other tools that
(06:59):
the Treasure secretaries talked about. So we're you know, we're
we're optimistic that that could be managed and in other words,
that risk could be a risk for five or seven percent,
but ultimately that risk will get managed to do you.
Speaker 1 (07:10):
Get clients, hosk, can you now about the dead oceans?
Asking the equities trying to just about the dead oceans
that take place in the week.
Speaker 3 (07:16):
Well, I really ask the equity folks. But I mean
people do ask about it, for sure. I mean, and
once again we have seen many auctions, soft auctions for
the last two or three years, we've seen this occur
and then they get control of it.
Speaker 2 (07:27):
Again.
Speaker 3 (07:28):
I don't want to dismiss the risk from the back
end of the market that is still to me. The risk,
I mean is the risk not only for markets. It's
the risk for the US, Like we have too much
debt and this is a focus. And if we don't
I mean, ultimately, if we don't you know, cut the
budget over time, like and maybe the market is now
giving them a lead like okay, we'll give you twelve months,
(07:50):
you know, but if we don't get serious about you know,
budget reconciliation and actually reducing the size of the budget
over time, this is an issue that's going to stay
with us.
Speaker 1 (07:59):
Mike Wilson more than Stantley. Three words over the weekend.
Don't fight it. Don't fight this market, Mike, Thank you, sir.
I appreciate it.
Bloomberg Audio Studios, podcasts, radio news, basically One Wall Street.
At the moment, might Wilson of More Good Stand be
taken a very constructive view on things, writing the rates
of changes turned for the better on most fronts. This
keeps us positive on us sequities on a twelve month basis,
we expect pullbacks to be shallow and unsatisfying to those
looking for a fatter pitch. Mike joined us now for
(00:24):
more Mike, good morning, Good morning John. I love the
reason no don't find SI. So let's talk about don't
find one? What elements of the market move shouldn't we fight?
Speaker 2 (00:31):
Well, it's kind of what we're just talking about.
Speaker 3 (00:32):
I mean, the headlines remained very noisy and uncertain, and
I think you know this has been the case for
the whole year. Our view, as you know, has been
a bit different. We came in thinking the first half
would be tougher and the rate of change and a
lot of things like earnings, re visions and some of
the headline would be negative. And in fact that what
we think happens. That all got priced in the week
after Liberation Day, right, it was violent, it was a
(00:53):
de leveraging and so now as we look at the
data itself, it's all inflected higher and so, you know,
don't everything, but ignoring the headlines is probably a good
strategy and just focus on the data has turned up
for the most part. And I think, you know, I
don't know where the trade negotiations are going. Nobody does,
but I think it's very unlikely we're going to go
back to where we were, you know, a month and
a half ago, like we bottomed in terms of the
(01:16):
pain of that initial you know, announcement and how bad
those tariffs were. So unless it really re escalates in
a negative fashion, I don't think the trade issues is
even going to be enough to kind of take the
momentum out.
Speaker 2 (01:28):
Of this market right now.
Speaker 1 (01:29):
You know what the bad view sounds like. They would
say that maybe some of the data, some of the
earnings we've seen have been flattened by pull forward and
we'll get the bill for that later this summer. Do
you think we're priced for that kind of slowed down,
that weakness we could see in a summer months.
Speaker 2 (01:40):
That's probably right.
Speaker 3 (01:41):
And when we had that view too, there was a
pull forward and Q one Q we're not being better
than they feared because you know, the numbers came down
a bunch.
Speaker 2 (01:47):
I think the second.
Speaker 3 (01:48):
Quarter, though, is expected now to be weaker, so that's
going to be the key. I think the biggest risk
for the market's going to probably be either rates as
we've talked about in the past, you know, north of
four and a half percent.
Speaker 2 (01:57):
Or we do go an earning season.
Speaker 3 (01:59):
It's not as you know, people were hoping for, and
we have maybe a five to seven percent correction, but
that's not what people kind of want. People want a
ten you know, another ten to fifteen percent draw down
to get better, to get more exposure, and I just
don't think you're going to get that. I mean, I've
seen this a million times. You want it, but you're
just going to have to have a shorter trigger finger.
Speaker 4 (02:19):
Well, you had seen retail largely buying the dip that
that's who participated when you got those ruptures in April.
If we're not going to get dips like that anymore,
what is the willingness of institutions to continue to put
money to work right now, especially they didn't even buy
the pass dips we saw.
Speaker 3 (02:34):
Yeah, I think institutions have re risk, but there's still
more to go. The one the area that I think
that that you have to watch is the is the
systematic strategies the CTAs that price willmentum money. We saw
almost five hundred million dollars of de leveraging in that
period of early March through mid April, and they've re
risked maybe thirty forty percent of that. So that's another
(02:55):
bid that's sort of it's not fundamentally driven, it's just
price momentum.
Speaker 2 (02:59):
So that's that's going to be kind of underlying bid.
Speaker 3 (03:00):
And then I think, you know, most institutions have re
risk but one thing I haven't talked about yet is
it's people are still making the quality bet and we
agree with that, meaning this isn't the beginning of a
news cycle. It's once again an extension of the existing cycle.
And the Fed's probably going to be cutting at some
point later this year early next year, and that really
behooves the large cap quality equities.
Speaker 4 (03:23):
Does it behoove companies specifically who can also weigh out
some of the tariff uncertainty because this has been a
big part of the narrative. Right no one's making decisions.
Cap X is largely stalled unless your tech is there
an element where even though we don't have terarras resolved
that you get companies who just get on with it
and start to put capital to work.
Speaker 2 (03:41):
Yeah, they got to run a business.
Speaker 3 (03:42):
And that's another reason why large cap quality businesses can
do this. They can mitigate some of these risks, whether
it's terriffs, whether it's you know, maybe a government cutting
back on certain types of spending. And one of the
things that is getting through this tax build that I
think is still underappreciated is the tax incentives for.
Speaker 2 (03:57):
Cap X and R and D spending.
Speaker 3 (03:59):
We think that could add three to five percent to
earnings growth or cash earnings for these large multinationals. That's
a big tail in addition to the weaker dollars. So
there's just a lot of tailwinds I see from an
earning standpoint.
Speaker 2 (04:10):
And this is almost a perfect.
Speaker 3 (04:12):
Environment to climb the wall of worry because the economic data,
the political geopolitical data is messy, it's noisy, it's scary sometimes,
but as long as the revision factors for earnings are
heading north, it's just hard for stacks to go down.
Speaker 1 (04:24):
When you say capecks, I just think of a handful
of tech companies. Do you think it goes beyond just
tank leadership.
Speaker 3 (04:29):
Oh absolutely. I think this is about capital goods. I
think this is not just about AI capbacks. Also, one
thing to just keep in mind, the IT cappacks that's
been good the last several years has really been concentrated
just in AI. Okay, the traditional kind of upgrades you
see in the enterprise and in the household have not
been happening because there was a giant pull forward, remember
(04:50):
in twenty twenty and twenty twenty one for work from home.
So if you actually look at the IT capback cycle
from twenty two to twenty four, it was kind of
a software session. And that's another part of our thea
We've been going through these rolling recessions and look, to me,
the big, the big catalyst to keep in mind for
broadening out is going to be when the Fed starts
to signal they're more dubbish. I don't know when that's
going to be, but my guess is sometime in the
(05:12):
third Court they're going to start to signal that, and
that's when they're going to get more broadening out to
the lower quality parts.
Speaker 1 (05:17):
Is the why matter? Do we need it because inflation
is coming in? Or is it going to be because the
labor market is cracking.
Speaker 3 (05:23):
Well, I mean, look at last fall, it was both right,
the labor market was cracking last summer. As soon as
they signaled they were ready to step in, the market
went up anyway. So that's why I mean, I actually
think of recession if we finally get the you know,
broad recession labor cycle, I don't think the equity markets
are going anywhere near the April lows because the FED
will be able to act quickly, and we're like Pavlovian, right,
(05:44):
And if retail is buying when the FED wasn't even.
Speaker 2 (05:46):
Cutting, if they are cutting, there's going to.
Speaker 3 (05:49):
Be a big bid there. So look, there's always risks
in the market. There's always something to be worried about.
There's always things to bearishan and there seems to be
bullish on and.
Speaker 2 (05:56):
That's our job.
Speaker 3 (05:56):
And I think, you know, this year we've navigated that
pretty well, being in the right place. And I think
we're going to continue to have to shift what we
want to own, not so much how much you want
to own.
Speaker 1 (06:04):
You've acknowledged the one thing that could be a handwind
for equities as interest rates. He wrote about it over
the weekend. What is it about four fifty that's challenging
to this equity market because based on the running we've
seen over the past few weeks, we don't see much
of a challenge.
Speaker 2 (06:17):
Well, it's stabilized at four fifty.
Speaker 3 (06:18):
So we've identified this level like almost two years ago,
and it's been like a charm. I mean, as soon
as you cross four to fifty in the upside, the
correlation between stocks and rates goes negative and vice versa.
Speaker 2 (06:30):
Now, I do think that we kind of went.
Speaker 3 (06:32):
To four seventy in the April period and then they
calm down again.
Speaker 2 (06:35):
I think the market is getting comfortable that they have
enough tools.
Speaker 3 (06:39):
Because you know, the Treasury Secretary has talked about that
to keep it four to fifty or below if they
need to, And I think we talked about this last
time I was here. Four to seventy five is like
the worst place because that's where markets get really nervous.
Five percent I actually get bullish because then I know
that they're going to come and intervene with either liquidity
injections or they're going to use these other tools that
(06:59):
the Treasure secretaries talked about. So we're you know, we're
we're optimistic that that could be managed and in other words,
that risk could be a risk for five or seven percent,
but ultimately that risk will get managed to do you.
Speaker 1 (07:10):
Get clients, hosk, can you now about the dead oceans?
Asking the equities trying to just about the dead oceans
that take place in the week.
Speaker 3 (07:16):
Well, I really ask the equity folks. But I mean
people do ask about it, for sure. I mean, and
once again we have seen many auctions, soft auctions for
the last two or three years, we've seen this occur
and then they get control of it.
Speaker 2 (07:27):
Again.
Speaker 3 (07:28):
I don't want to dismiss the risk from the back
end of the market that is still to me. The risk,
I mean is the risk not only for markets. It's
the risk for the US, Like we have too much
debt and this is a focus. And if we don't
I mean, ultimately, if we don't you know, cut the
budget over time, like and maybe the market is now
giving them a lead like okay, we'll give you twelve months,
(07:50):
you know, but if we don't get serious about you know,
budget reconciliation and actually reducing the size of the budget
over time, this is an issue that's going to stay
with us.
Speaker 1 (07:59):
Mike Wilson more than Stantley. Three words over the weekend.
Don't fight it. Don't fight this market, Mike, Thank you, sir.
I appreciate it.
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