Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Very pleased to be
Speaker 1: joined this morning by Mike Wilson, chief US equity strategist
Speaker 1: at Morgan Stanley as we continue to watch the market
Speaker 1: reaction to all the trade headlines we've seen over the
Speaker 1: last days and weeks. Mike, good morning, Thank you so
Speaker 1: much for being with us. We're seeing futures pull back
Speaker 1: this morning, a pop in the Vicks after the thirty
Speaker 1: five percent announcement on Canada fifteen to twenty, the President
Speaker 1: saying for much of the rest of the world, is
Speaker 1: the market starting to wake up to what could be
Speaker 1: coming when it comes to trade.
Speaker 2: Good morning, Good morning, Nathan Well, I would say, here
Speaker 2: we go again, you know, like we kind of know
Speaker 2: the pattern now. I mean, this is President Trump's style.
Speaker 2: Hill he goes hard and then he you know, he
Speaker 2: doesn't cut back off completely. But it's it's a back
Speaker 2: and forth. And that'sotiating style. You know. It's the old
Speaker 2: bat now where you put your stake in the ground
Speaker 2: and aggressively and then you try to negotiate something. And
Speaker 2: so the market has figured this out though, and I
Speaker 2: think President Trump has figured it out too. But what
Speaker 2: I've found interesting is that he'll come out and do
Speaker 2: something you know, uh that's perceived quite negatively, Like overnight,
Speaker 2: the market will go down a percent and then he'll
Speaker 2: you know, something will change and then the market will
Speaker 2: go up two percent, you know. So it's like one
Speaker 2: step back, two steps forward. Now, that's not going to
Speaker 2: work forever. Eventually we have to get to some deals,
Speaker 2: so you know, we're getting closer. I think, you know,
Speaker 2: he's just trying to exert as much pressure as he
Speaker 2: can to try and get some deals done before these deadlines.
Speaker 2: These deadlines get pushed back, and that's that's a classic
Speaker 2: negotiating style. So we'll see if it's successful. But you know,
Speaker 2: as you mentioned, the market seems to be okay with
Speaker 2: it for now, and that you know, I think as
Speaker 2: you're there's an article you mentioned, I think it does
Speaker 2: embolden him to continue to go down this path.
Speaker 1: Give it where the future's action is going this morning.
Speaker 1: Do you see the market trying to steer what the
Speaker 1: president could do when it comes to the overall trade regime?
Speaker 2: Yeah, I mean I think that it's a good thing
Speaker 2: to think about. I mean, is the market going to
Speaker 2: exert its force to kind of to make all the
Speaker 2: folks involved in this policy making to come to some
Speaker 2: sort of conclusion. Hasn't happened yet, there will become a
Speaker 2: point of exhaustion, is the way I like to think
Speaker 2: about it. To me, that's probably sometime during the third quarter.
Speaker 2: I think the other thing that could happen in the
Speaker 2: third quarter that may exert some pressure is that so
Speaker 2: far the terriffs haven't really had an impact on margins
Speaker 2: and revenue or demand. And some of that has to
Speaker 2: do with the timing of everything. Right. We have a
Speaker 2: lot of companies still selling older inventory that's cheaper, so
Speaker 2: it hasn't had to flow through the pricing or margins.
Speaker 2: But that we think begins to change in the third quarter,
Speaker 2: and that could be the catalyst because stocks will react
Speaker 2: to hits to margins, or perhaps we get a spike
Speaker 2: in inflation, which you know then causes the Fed the
Speaker 2: town we're hawk ish and the market will care about
Speaker 2: that for sure.
Speaker 1: Do you expect companies to start to telegraph that in
Speaker 1: their earnings forecast? We've started to see some companies talk
Speaker 1: about what the tariff impact could be as they've been
Speaker 1: reporting in the early going. How do you see that
Speaker 1: shaking out.
Speaker 2: Yeah, so I think it's primarily an issue. It's going
Speaker 2: to be an issue for you know, some of the
Speaker 2: consumer companies where they don't have a lot of pricing power,
Speaker 2: they've got probably some excess inventory, you know, on purpose,
Speaker 2: or maybe they did that because they won't you know,
Speaker 2: they wanted to get ahead of the tariffs. And so
Speaker 2: I do think that that's the part of the market
Speaker 2: where we could start to hear. Second quarter should be fine.
Speaker 2: It's going to be about the third quarter guidance. And
Speaker 2: those companies I mentioned tend to report towards the end
Speaker 2: of earning season, so end of July early August is
Speaker 2: when I would expect to hear more certain negative comments there.
Speaker 2: I think in the early parts of earnings we're not
Speaker 2: going to hear much negativity around that. You know, financials
Speaker 2: don't have a lot of you know, tariff implications. Some
Speaker 2: of the bigger companies can mitigate this. The weaker dollar
Speaker 2: is quite helpful. Is an offset to the multinationals, and
Speaker 2: now we have lower oil prices, which I think is
Speaker 2: also an offset for some of the terrors from a
Speaker 2: consumer standpoint.
Speaker 1: Do you expect dollar weakness to continue if we do
Speaker 1: see higher terrorf freights shake out across across the world.
Speaker 2: Well, we have a weaker dollar view over the next
Speaker 2: twelve months, mainly because of the rate differential. We expect
Speaker 2: many of the Fed it's going to be cutting probably
Speaker 2: more aggressively. They have more to cut than other central
Speaker 2: banks around the world. That's the primary driver. And then
Speaker 2: of course, you know, as inflation does eventually come down,
Speaker 2: we think this is a temporary spike in inflation from terrors.
Speaker 2: That would be another driver. So in the very near term,
Speaker 2: I think one of the bigger risks of the market
Speaker 2: people aren't thinking about is that we could see a
Speaker 2: dollar rally, just a counter trend move, like the trend
Speaker 2: is down, but you know, nothing goes straight down all
Speaker 2: the time, and the dollar does look to me like
Speaker 2: it's trying to state a rally here that actually could
Speaker 2: be somewhat of a negative for equities in the third quarter.
Speaker 2: Are potentially nothing dramatic, but I mean, I think that's
Speaker 2: probably a bigger risk than people are thinking about.
Speaker 1: Tell me a little bit more about why you think
Speaker 1: there could be a rally in the dollar, because there's
Speaker 1: been you know, some thought that with you know, this
Speaker 1: aggressive trade stance that the President's been taking that it
Speaker 1: could spark a negative reaction from the currency traders in
Speaker 1: terms of what other countries do.
Speaker 2: Well, I think we've seen that, right. I mean, you know,
Speaker 2: markets trade in advance, and I think the currency market
Speaker 2: has pre traded a lot of what you just said.
Speaker 2: I mean, quite frankly, given the FED. The Fed's been
Speaker 2: on hold all year and many of its peers around
Speaker 2: the world have been cutting rates. The dollar, you know,
Speaker 2: I mean should have been stronger and it hasn't been.
Speaker 2: So I think I think a lot of the tariff
Speaker 2: concerns are in the currency market, and so that's digested.
Speaker 2: You know, what's not in the market. It still is
Speaker 2: this idea that the Fed's on hold, and it's our
Speaker 2: calls that the Feds are on hold the rest of
Speaker 2: this year, I think, I think, you know, at least
Speaker 2: to the third quarter. And so to me, it's just
Speaker 2: a counter trend rally. And then of course I'm a technician,
Speaker 2: like a lot of investors, and it looks to me
Speaker 2: like it's trying to stage a tactical rally. That's all
Speaker 2: we're looking for.
Speaker 1: Okay, So in our last thirty seconds, do you expect
Speaker 1: to continued US leadership when it comes to stocks compared
Speaker 1: to the rest of the world.
Speaker 2: I do I think, you know, I think we have
Speaker 2: a pretty good clean out in April. This has been
Speaker 2: our call since April. The rate of change on everything
Speaker 2: we look at from a stock standpoint reversed by the way.
Speaker 2: It doesn't mean that foreign stocks, you know, can't perform too,
Speaker 2: But I do not believe in this idea that we're
Speaker 2: going to have this multi year run in foreign equities
Speaker 2: relative to the US's and I think that's played out
Speaker 2: since we made that call in early April.
Speaker 1: And thanks so much, Mike. Always great to have you
Speaker 1: with us on daybreak. That's Mike Wilson. He is chief
Speaker 1: US equity strategist at Morgan Stanley