July 29, 2025 • 7 mins
“It looks to us like we’re having a rolling recovery,” says Mike Wilson, chief investment officer and chief US equity strategist at Morgan Stanley, as he explains the factors behind his bullish outlook for markets into next year. He speaks with Bloomberg's Jonathan Ferro and Lisa Abramowicz
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:07):
Here's the latest this morning. Trade talks between the US
and China stretching into a second day as President Trump's
Friday deadline approaches. The COMMAS Secretary Howard Latinik thing a
ninety day truce extension, which China is likely. Mike Wilson
of Malkan Stanley is bullish, writing We're bullish into twenty
six through the near term setup is not without risks.
These include tariff related inflation. Mike joins us now for more. Mike,
(00:30):
good morning, Good to see you. You list a lot
of reasons to be constructive here, just go through those
leasons for us this morning.
Speaker 3 (00:36):
Yeah.
Speaker 1 (00:36):
I mean the reasons really haven't changed.
Speaker 4 (00:38):
We've been very constructive since May when we did our
midyear update. And I think the main thing to take
away from our outlook that's maybe different than others. I
think we came into the year feeling the first half
would be tricky, second half would be better, and that
was all function of the sequencing of the policy.
Speaker 1 (00:53):
Right.
Speaker 4 (00:53):
So the policy sequencing was what we said is a
kitchen sink the first quarter. It took to the growth
negative stuff first and then.
Speaker 1 (01:00):
Flipped very quickly in April.
Speaker 4 (01:01):
So the main reason we're bullish, okay, is that the
earnings revision breath and we show this every week in
our note and it goes up every week, has exploded
higher off of what was a deep cyclical low that
basically priced in a recession for the most part, So
that revision breath is guiding us to the performance that
we've seen.
Speaker 1 (01:19):
This is just to put it in context.
Speaker 4 (01:21):
Okay, this increase or V shaped recovery and arrange re
vision breath is as significant as we've seen since COVID,
the COVID recovery, and that was the last time that
we were this far out of consensus being bullish, and
it was right because of it.
Speaker 1 (01:35):
It's the data. We're data dependent, So that's the main reason.
Speaker 4 (01:37):
So this is not just me saying, oh, momentum stocks
and price momentum, etc.
Speaker 1 (01:42):
That's part of it too. So what's driving that earninge
revision breath? Well, first, it's a.
Speaker 4 (01:45):
Reflexivity just on people getting too bearish on the growth
negative stuff.
Speaker 1 (01:49):
And let's not forget the AI camp X cycle, which.
Speaker 4 (01:52):
We came into your feeling negative about, also bottomed in April.
Speaker 1 (01:56):
Okay, So those are two big drivers.
Speaker 4 (01:57):
The second one is a weaker dollar dollars, a big
tail wind for multinational companies, okay. And the third one
now is we're starting to see operating leverage in more
companies across the S and P five hundred. And this
is a very unique view that we've had. So, you know,
the rolling recession call that we've kind of been talking about, well,
now it looks to us like we're having a rolling recovery, okay,
And that will be further spurred by the FED cutting
(02:20):
rates at some point in the next year. And we
don't know exactly when they're going to start, but I
think it's fair to say that they're not going to
be raising rates. So this three year what I would
call soft recession that we've been living through, now we're
sort of coming through that and we're getting more visibility
and that that's why we're more constructive on the next year. Now,
in the next three months, I do think that some
of the things that people have been worried about could
start to play through earnings.
Speaker 1 (02:41):
For example, we.
Speaker 4 (02:42):
Can see cost of goods sold increase because of the tariff.
You know, the inventory now is flowing through, the cost
of goods sold.
Speaker 1 (02:47):
We could see the back.
Speaker 4 (02:48):
End of the treasury markets start to back up again
because of the supply that we know is coming. And
then of course we still have to deal with just
this sort of concern around inflation and how does that
play through, how.
Speaker 1 (02:57):
Does the Fed respond to that? So there are risks there.
Speaker 4 (03:00):
We're not saying there's no risks. And remember the market
trade six months in advance. So that's what's happened. The
market has figured this out, it's gotten ahead of it,
and we've priced a lot of good news.
Speaker 3 (03:09):
How much is this entirely tech driven versus a broad
based kind of revisions increase and recovery. Given some of
the mixed guidance that we're getting this morning from a
number of companies, particularly those that are consumer facing.
Speaker 1 (03:20):
That's right.
Speaker 4 (03:20):
Well, it still remains mixed because we're still in this
rolling recovery, right, So it's not everything at once. Tech
and the MAG seven are leading, but we're seeing also
other groups, industrials, financials, Okay Software, which has been in
a software session for the last couple of years, we're
seeing we are seeing a.
Speaker 1 (03:35):
Broadening out for the Max seven. So it's not.
Speaker 4 (03:38):
Where we need to be to see say, oh, we're
going to move into small cap stocks, We're going to
move into the low quality parts of the market. We're
still staying up that curve, however, it's starting to progress.
Just like the rolling recession saw degradation that was not
all at once, but kind of more piecemeal.
Speaker 3 (03:53):
So during the rolling recession, we saw gains of about
twenty percent on the S and P five hundred first
couple of consecutive years.
Speaker 2 (03:59):
Could you see.
Speaker 3 (03:59):
Gains twenty percent or more during rolling recovery? Does it
matter if you're in a rolling reception or really recovery
in terms of the returns.
Speaker 4 (04:06):
What I would hope is that we would see areas
that have been lagging start to participate more. And that's
that's sort of our view on twenty six right, and
that's sort of starting to happen now. Industrials has been
the best performing sector here today. It's been our top
pick for the right reasons, for the reasons that we've
been citing, which is earnings there starting to look better.
Let's not forget the tax bill, which I didn't even
mentioned earlier.
Speaker 1 (04:24):
This is a massive, okay.
Speaker 4 (04:26):
Tailwind for cash earnings for US companies. I mean to
the tune of five to ten percent increase.
Speaker 1 (04:33):
So that's real money going into the pockets of companies.
Speaker 4 (04:35):
They're now allocating capital, not the government, and I think
everybody would agree that's probably a better outcome.
Speaker 2 (04:40):
Do you think US exceptionalism is back? Is everyone else
signing up to that?
Speaker 1 (04:44):
Well, what I.
Speaker 4 (04:45):
Would say is that maybe US exceptionalism has been missing. Okay,
So now, I mean, no one wants to admit this,
but the direction we're going in now, it looks like
we are going.
Speaker 1 (04:54):
To see better participation.
Speaker 4 (04:56):
Across the economy. We've been waiting for this. We've been
waiting for this for two or three years. You know,
We've bend kind of back and forth, sometimes bullets, sometimes
bears trying to pick stocks. And this is the first
time I can say that I can now see the
path of this transition. We're actually starting to rotate into
more of an early cycle recovery.
Speaker 2 (05:13):
Let me give you some more space to do this,
because it's important the strategy of the White House and
the rebalancing that you envision a year out, two years out,
three years out. What is it you see?
Speaker 4 (05:23):
Well, the rebalancing is both global and domestic. So the
global rebalancing is obvious. Are trying to reduce our current
account deficit, you know, get the trade negotiations are along
those lines.
Speaker 1 (05:33):
And I think that's rising.
Speaker 4 (05:34):
That's a good strategy, getting more manufacturing, potentially in house
or domestically. In the domestic rebalancing, it's really instead of
just having the one percent right, it's you know, Main
Street over Wall Street. I mean, people say, well, that
doesn't sound like that's working right now. But the idea
here is you get lending through the regional banking sector,
you get lending smaller banks, lending to small businesses, to individuals,
(05:57):
get rates down at the back end.
Speaker 1 (05:59):
Okay, that is that.
Speaker 4 (06:00):
Will liberate actually the domestic the sort of the middle
part of the economy.
Speaker 3 (06:05):
Where do you then place this idea that tariffs are
pretty regressive, this idea that lower income individuals bear the
brunt of it. BECs is essentially a sales tax on them.
And you're already seeing companies really grapple with what that
means for demand, particularly in the travel and leisure space.
How do you square that with a sort of broad
based dynamism that you're talking about.
Speaker 4 (06:25):
So I think it's very simple in the sense that
you have to think, Okay, what do you have to
think about? What are the terrors trying to achieve? My
view has always been that this is going to end
up being an import tax. Now I would have said,
you know, two weeks ago, this is a ten percent
it's going to end up a ten percent import tax
that's going to be shared between exporter, importer, and consumer,
and the market will determine, okay, who can absorb those terrors.
(06:48):
Exporter will decide, hey, we got a discount because we're
going to lose volume. Importer will say we can't pass
it on. We're going to eat some of that, and
the companies that have pricing power will pass it through. Okay, Now,
we believe that the consumer areas have less pricing power,
so I would argue that the pricing power is going
to be more, probably in the industrial space, probably more
in the you know, sort of the value added supply chain.
(07:10):
So then what do they do on the other side, Oh,
they do a tax cut for the companies. So it's
it's just basically saying we're going to tax this chain here,
which is going to be a shared tax, but then
we're going to actually give that away to corporations who
could then reinvest and actually get.
Speaker 1 (07:25):
The economy moving.
Speaker 4 (07:26):
It's I mean, it is a capitalist type of approach. Now,
I don't know if it's going to work perfectly, but
I like the direction of it from a from an
investors standpoint.
Speaker 1 (07:35):
I love this. Okay.
Speaker 4 (07:36):
Now, I'm not here to make judgments about who gets
herot the most or whatever, and I don't really know,
but I can see the path and why we're more constructive,
why we've been more constructive on the twelve month you.
I think remember last year you said, you know, Mike,
this first time i've heard you sound a little more
constructive because I had that vision.
Speaker 2 (07:52):
Is overwhelming this morning, Mike, I've got to get to
a brank We all need to PreK my Wolston and
walk and standing. Mike, appreciate it. Thank you, sir. It's
going to see you
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:07):
Here's the latest this morning. Trade talks between the US
and China stretching into a second day as President Trump's
Friday deadline approaches. The COMMAS Secretary Howard Latinik thing a
ninety day truce extension, which China is likely. Mike Wilson
of Malkan Stanley is bullish, writing We're bullish into twenty
six through the near term setup is not without risks.
These include tariff related inflation. Mike joins us now for more. Mike,
(00:30):
good morning, Good to see you. You list a lot
of reasons to be constructive here, just go through those
leasons for us this morning.
Speaker 3 (00:36):
Yeah.
Speaker 1 (00:36):
I mean the reasons really haven't changed.
Speaker 4 (00:38):
We've been very constructive since May when we did our
midyear update. And I think the main thing to take
away from our outlook that's maybe different than others. I
think we came into the year feeling the first half
would be tricky, second half would be better, and that
was all function of the sequencing of the policy.
Speaker 1 (00:53):
Right.
Speaker 4 (00:53):
So the policy sequencing was what we said is a
kitchen sink the first quarter. It took to the growth
negative stuff first and then.
Speaker 1 (01:00):
Flipped very quickly in April.
Speaker 4 (01:01):
So the main reason we're bullish, okay, is that the
earnings revision breath and we show this every week in
our note and it goes up every week, has exploded
higher off of what was a deep cyclical low that
basically priced in a recession for the most part, So
that revision breath is guiding us to the performance that
we've seen.
Speaker 1 (01:19):
This is just to put it in context.
Speaker 4 (01:21):
Okay, this increase or V shaped recovery and arrange re
vision breath is as significant as we've seen since COVID,
the COVID recovery, and that was the last time that
we were this far out of consensus being bullish, and
it was right because of it.
Speaker 1 (01:35):
It's the data. We're data dependent, So that's the main reason.
Speaker 4 (01:37):
So this is not just me saying, oh, momentum stocks
and price momentum, etc.
Speaker 1 (01:42):
That's part of it too. So what's driving that earninge
revision breath? Well, first, it's a.
Speaker 4 (01:45):
Reflexivity just on people getting too bearish on the growth
negative stuff.
Speaker 1 (01:49):
And let's not forget the AI camp X cycle, which.
Speaker 4 (01:52):
We came into your feeling negative about, also bottomed in April.
Speaker 1 (01:56):
Okay, So those are two big drivers.
Speaker 4 (01:57):
The second one is a weaker dollar dollars, a big
tail wind for multinational companies, okay. And the third one
now is we're starting to see operating leverage in more
companies across the S and P five hundred. And this
is a very unique view that we've had. So, you know,
the rolling recession call that we've kind of been talking about, well,
now it looks to us like we're having a rolling recovery, okay,
And that will be further spurred by the FED cutting
(02:20):
rates at some point in the next year. And we
don't know exactly when they're going to start, but I
think it's fair to say that they're not going to
be raising rates. So this three year what I would
call soft recession that we've been living through, now we're
sort of coming through that and we're getting more visibility
and that that's why we're more constructive on the next year. Now,
in the next three months, I do think that some
of the things that people have been worried about could
start to play through earnings.
Speaker 1 (02:41):
For example, we.
Speaker 4 (02:42):
Can see cost of goods sold increase because of the tariff.
You know, the inventory now is flowing through, the cost
of goods sold.
Speaker 1 (02:47):
We could see the back.
Speaker 4 (02:48):
End of the treasury markets start to back up again
because of the supply that we know is coming. And
then of course we still have to deal with just
this sort of concern around inflation and how does that
play through, how.
Speaker 1 (02:57):
Does the Fed respond to that? So there are risks there.
Speaker 4 (03:00):
We're not saying there's no risks. And remember the market
trade six months in advance. So that's what's happened. The
market has figured this out, it's gotten ahead of it,
and we've priced a lot of good news.
Speaker 3 (03:09):
How much is this entirely tech driven versus a broad
based kind of revisions increase and recovery. Given some of
the mixed guidance that we're getting this morning from a
number of companies, particularly those that are consumer facing.
Speaker 1 (03:20):
That's right.
Speaker 4 (03:20):
Well, it still remains mixed because we're still in this
rolling recovery, right, So it's not everything at once. Tech
and the MAG seven are leading, but we're seeing also
other groups, industrials, financials, Okay Software, which has been in
a software session for the last couple of years, we're
seeing we are seeing a.
Speaker 1 (03:35):
Broadening out for the Max seven. So it's not.
Speaker 4 (03:38):
Where we need to be to see say, oh, we're
going to move into small cap stocks, We're going to
move into the low quality parts of the market. We're
still staying up that curve, however, it's starting to progress.
Just like the rolling recession saw degradation that was not
all at once, but kind of more piecemeal.
Speaker 3 (03:53):
So during the rolling recession, we saw gains of about
twenty percent on the S and P five hundred first
couple of consecutive years.
Speaker 2 (03:59):
Could you see.
Speaker 3 (03:59):
Gains twenty percent or more during rolling recovery? Does it
matter if you're in a rolling reception or really recovery
in terms of the returns.
Speaker 4 (04:06):
What I would hope is that we would see areas
that have been lagging start to participate more. And that's
that's sort of our view on twenty six right, and
that's sort of starting to happen now. Industrials has been
the best performing sector here today. It's been our top
pick for the right reasons, for the reasons that we've
been citing, which is earnings there starting to look better.
Let's not forget the tax bill, which I didn't even
mentioned earlier.
Speaker 1 (04:24):
This is a massive, okay.
Speaker 4 (04:26):
Tailwind for cash earnings for US companies. I mean to
the tune of five to ten percent increase.
Speaker 1 (04:33):
So that's real money going into the pockets of companies.
Speaker 4 (04:35):
They're now allocating capital, not the government, and I think
everybody would agree that's probably a better outcome.
Speaker 2 (04:40):
Do you think US exceptionalism is back? Is everyone else
signing up to that?
Speaker 1 (04:44):
Well, what I.
Speaker 4 (04:45):
Would say is that maybe US exceptionalism has been missing. Okay,
So now, I mean, no one wants to admit this,
but the direction we're going in now, it looks like
we are going.
Speaker 1 (04:54):
To see better participation.
Speaker 4 (04:56):
Across the economy. We've been waiting for this. We've been
waiting for this for two or three years. You know,
We've bend kind of back and forth, sometimes bullets, sometimes
bears trying to pick stocks. And this is the first
time I can say that I can now see the
path of this transition. We're actually starting to rotate into
more of an early cycle recovery.
Speaker 2 (05:13):
Let me give you some more space to do this,
because it's important the strategy of the White House and
the rebalancing that you envision a year out, two years out,
three years out. What is it you see?
Speaker 4 (05:23):
Well, the rebalancing is both global and domestic. So the
global rebalancing is obvious. Are trying to reduce our current
account deficit, you know, get the trade negotiations are along
those lines.
Speaker 1 (05:33):
And I think that's rising.
Speaker 4 (05:34):
That's a good strategy, getting more manufacturing, potentially in house
or domestically. In the domestic rebalancing, it's really instead of
just having the one percent right, it's you know, Main
Street over Wall Street. I mean, people say, well, that
doesn't sound like that's working right now. But the idea
here is you get lending through the regional banking sector,
you get lending smaller banks, lending to small businesses, to individuals,
(05:57):
get rates down at the back end.
Speaker 1 (05:59):
Okay, that is that.
Speaker 4 (06:00):
Will liberate actually the domestic the sort of the middle
part of the economy.
Speaker 3 (06:05):
Where do you then place this idea that tariffs are
pretty regressive, this idea that lower income individuals bear the
brunt of it. BECs is essentially a sales tax on them.
And you're already seeing companies really grapple with what that
means for demand, particularly in the travel and leisure space.
How do you square that with a sort of broad
based dynamism that you're talking about.
Speaker 4 (06:25):
So I think it's very simple in the sense that
you have to think, Okay, what do you have to
think about? What are the terrors trying to achieve? My
view has always been that this is going to end
up being an import tax. Now I would have said,
you know, two weeks ago, this is a ten percent
it's going to end up a ten percent import tax
that's going to be shared between exporter, importer, and consumer,
and the market will determine, okay, who can absorb those terrors.
(06:48):
Exporter will decide, hey, we got a discount because we're
going to lose volume. Importer will say we can't pass
it on. We're going to eat some of that, and
the companies that have pricing power will pass it through. Okay, Now,
we believe that the consumer areas have less pricing power,
so I would argue that the pricing power is going
to be more, probably in the industrial space, probably more
in the you know, sort of the value added supply chain.
(07:10):
So then what do they do on the other side, Oh,
they do a tax cut for the companies. So it's
it's just basically saying we're going to tax this chain here,
which is going to be a shared tax, but then
we're going to actually give that away to corporations who
could then reinvest and actually get.
Speaker 1 (07:25):
The economy moving.
Speaker 4 (07:26):
It's I mean, it is a capitalist type of approach. Now,
I don't know if it's going to work perfectly, but
I like the direction of it from a from an
investors standpoint.
Speaker 1 (07:35):
I love this. Okay.
Speaker 4 (07:36):
Now, I'm not here to make judgments about who gets
herot the most or whatever, and I don't really know,
but I can see the path and why we're more constructive,
why we've been more constructive on the twelve month you.
I think remember last year you said, you know, Mike,
this first time i've heard you sound a little more
constructive because I had that vision.
Speaker 2 (07:52):
Is overwhelming this morning, Mike, I've got to get to
a brank We all need to PreK my Wolston and
walk and standing. Mike, appreciate it. Thank you, sir. It's
going to see you
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