1 00:00:00,000 --> 00:00:03,440 Speaker 1: Morgan Stanley strategist Mike Wilson cutting is twenty twenty five 2 00:00:03,520 --> 00:00:05,760 Speaker 1: earnings per share forecast for the S and P five 3 00:00:05,800 --> 00:00:08,680 Speaker 1: hundred firms to two hundred and fifty seven dollars from 4 00:00:08,720 --> 00:00:12,680 Speaker 1: two hundred and seventy one because of the tariff uncertainty. 5 00:00:13,160 --> 00:00:16,360 Speaker 1: And I'm happy to say Mike Wilson joining Bloomberg Day 6 00:00:16,400 --> 00:00:19,759 Speaker 1: Break right now to discuss Mike. Let me first of all, 7 00:00:19,920 --> 00:00:22,560 Speaker 1: good morning, thanks for being here. Let's start with the 8 00:00:22,560 --> 00:00:25,200 Speaker 1: earning season. I got to wonder if we're going to 9 00:00:25,280 --> 00:00:29,040 Speaker 1: learn more from the numbers or from the commentary and 10 00:00:29,080 --> 00:00:32,880 Speaker 1: the forecasts or lack of forecasts. 11 00:00:33,320 --> 00:00:36,120 Speaker 2: Well, good morning, Yeah, we'll learn something. I think what 12 00:00:36,159 --> 00:00:38,239 Speaker 2: we're going to learn is that there's still a lot 13 00:00:38,240 --> 00:00:41,040 Speaker 2: of uncertainty. And I want to back up a second. 14 00:00:41,080 --> 00:00:43,320 Speaker 2: You know, we did cut our numbers, but it wasn't 15 00:00:43,400 --> 00:00:46,040 Speaker 2: just because of terriffs. I mean, and this is a 16 00:00:46,120 --> 00:00:48,560 Speaker 2: theme or you know, a thesis we've had for a while. 17 00:00:48,800 --> 00:00:50,599 Speaker 2: You know, we think there's a lot more going on 18 00:00:50,760 --> 00:00:53,360 Speaker 2: than just terroriffs that have been weighing on you know, 19 00:00:53,440 --> 00:00:57,000 Speaker 2: growth outlooks, this and this you know correction that we've 20 00:00:57,040 --> 00:01:00,240 Speaker 2: been involved in has been is very well advanced. Would 21 00:01:00,240 --> 00:01:02,680 Speaker 2: say one of the biggest headwinds that doesn't get a 22 00:01:02,720 --> 00:01:06,080 Speaker 2: lot of airtime is the fact that AI cap X, 23 00:01:06,560 --> 00:01:09,520 Speaker 2: you know, is under pressure and this idea that you 24 00:01:09,560 --> 00:01:12,520 Speaker 2: know they're getting the return on AI is just not there, 25 00:01:12,600 --> 00:01:15,760 Speaker 2: and that's been a huge driver of growth. The other 26 00:01:16,160 --> 00:01:17,760 Speaker 2: other things that are going on, of course, is that 27 00:01:17,840 --> 00:01:20,760 Speaker 2: you know, physcal spending is under pressure, and then just 28 00:01:20,800 --> 00:01:23,959 Speaker 2: the stock market itself, when you know when it's correcting 29 00:01:24,000 --> 00:01:28,160 Speaker 2: here is putting pressure on asset prices in that wealth effect. 30 00:01:28,560 --> 00:01:30,800 Speaker 2: That's been a huge tailwind for the last several years. 31 00:01:30,880 --> 00:01:34,400 Speaker 2: So you know, the overall economy itself has not been 32 00:01:34,440 --> 00:01:36,600 Speaker 2: that healthy in the United States for quite a while, 33 00:01:37,000 --> 00:01:40,800 Speaker 2: and the earnings picture has not really supported the asset 34 00:01:40,840 --> 00:01:43,760 Speaker 2: price inflation that we've been seeing, and of course the 35 00:01:43,800 --> 00:01:46,119 Speaker 2: Fed not cutting rates anymore. So there's a lot going 36 00:01:46,160 --> 00:01:48,640 Speaker 2: on besides just tariffs. To me, tariffs are almost the 37 00:01:49,480 --> 00:01:53,440 Speaker 2: last piece of the earnings and that's why we decided 38 00:01:53,480 --> 00:01:56,200 Speaker 2: to do it now, is like that's the cherry on 39 00:01:56,280 --> 00:01:58,480 Speaker 2: top almost to this slowdown that's going on. And the 40 00:01:58,560 --> 00:02:01,360 Speaker 2: question is is that tip us over into session? Right? 41 00:02:01,440 --> 00:02:05,000 Speaker 2: So does a two fifty seven look something worse. And 42 00:02:05,000 --> 00:02:07,040 Speaker 2: that's what we're trying to figure out during earning season 43 00:02:07,960 --> 00:02:11,520 Speaker 2: is our company is now going to take action meeting, 44 00:02:11,760 --> 00:02:16,360 Speaker 2: you know, layoff employees and we have a labor cycle finally, 45 00:02:16,600 --> 00:02:17,960 Speaker 2: and I don't know if we're going to get clarity 46 00:02:18,000 --> 00:02:19,560 Speaker 2: on that, but that's what I want to be looking for. 47 00:02:19,840 --> 00:02:23,120 Speaker 1: And also on the policy front, tax cuts, because it 48 00:02:23,160 --> 00:02:27,239 Speaker 1: sounds like in Washington as these negotiations take place, looking 49 00:02:27,240 --> 00:02:29,760 Speaker 1: for pay for is I'm not so sure this is 50 00:02:30,600 --> 00:02:33,520 Speaker 1: a certainty that we're going to see corporate tax cuts. 51 00:02:34,120 --> 00:02:35,760 Speaker 2: Well, that's right. I mean, I think what they're trying 52 00:02:35,800 --> 00:02:38,920 Speaker 2: to negotiate with with Congress now is really just an 53 00:02:39,000 --> 00:02:41,760 Speaker 2: extension of the tax cuts that were put in place, 54 00:02:41,880 --> 00:02:44,919 Speaker 2: you know, I guess seven years ago now. So I'm 55 00:02:44,960 --> 00:02:48,760 Speaker 2: not anticipating additional tax cuts, but boy, if we don't 56 00:02:48,840 --> 00:02:52,120 Speaker 2: get an extension on those tax cuts, that's you know, 57 00:02:52,280 --> 00:02:55,000 Speaker 2: that's going to really hammer earnings for next year. In 58 00:02:55,000 --> 00:02:56,280 Speaker 2: twenty twenty six. 59 00:02:56,919 --> 00:02:59,520 Speaker 1: We heard the news this morning China ordering its airlines 60 00:02:59,520 --> 00:03:03,040 Speaker 1: not to take any further deliveries of Boeing. I got 61 00:03:03,040 --> 00:03:05,680 Speaker 1: to wonder what goes through your mind as you see 62 00:03:05,760 --> 00:03:09,040 Speaker 1: this across the tape and the daily flow of evolving 63 00:03:09,120 --> 00:03:12,680 Speaker 1: trade policy. Does it provide any clarity or does it 64 00:03:12,760 --> 00:03:15,200 Speaker 1: add to the swirl of uncertainty? It all seems very 65 00:03:15,240 --> 00:03:15,840 Speaker 1: ad hoc. 66 00:03:16,960 --> 00:03:19,400 Speaker 2: Well, that's right, I mean, and you know this is 67 00:03:19,440 --> 00:03:22,320 Speaker 2: going to be messy. I mean, China clearly is not, 68 00:03:22,800 --> 00:03:25,840 Speaker 2: you know, bowing down in terms of you know, agreeing 69 00:03:25,840 --> 00:03:28,440 Speaker 2: to everything the United States wants. And that was always 70 00:03:28,440 --> 00:03:29,920 Speaker 2: going to be the case. Is that. I think the 71 00:03:30,480 --> 00:03:32,720 Speaker 2: you know, the tariffs on on China that you know 72 00:03:32,800 --> 00:03:35,800 Speaker 2: that those never came off, you know, even during the 73 00:03:35,800 --> 00:03:38,680 Speaker 2: Biden administration. So that's that's a That's just the one 74 00:03:38,680 --> 00:03:41,960 Speaker 2: that's going to be the most contentious for sure. I mean, 75 00:03:41,960 --> 00:03:44,960 Speaker 2: we're going to have negotiations with various countries over the 76 00:03:44,960 --> 00:03:48,960 Speaker 2: next ninety days, and I don't think anybody expects China 77 00:03:49,040 --> 00:03:51,960 Speaker 2: to come running to the table to negotiate. I mean, 78 00:03:51,960 --> 00:03:54,640 Speaker 2: that was always going to be the most contentious one, 79 00:03:55,000 --> 00:03:56,520 Speaker 2: and this is just more evidence of that. 80 00:03:57,000 --> 00:04:00,560 Speaker 1: Well, what's the message from foreign exchange in the body market? 81 00:04:00,640 --> 00:04:04,120 Speaker 1: Can we infer anything with respect to foreign capital inflows 82 00:04:04,120 --> 00:04:05,560 Speaker 1: into the US? 83 00:04:05,960 --> 00:04:08,960 Speaker 2: Well? Number one, I think it confirms what we knew 84 00:04:09,240 --> 00:04:11,280 Speaker 2: at the end of last year, which is that foreigners 85 00:04:11,320 --> 00:04:14,280 Speaker 2: probably have way too many assets in the United States 86 00:04:14,360 --> 00:04:16,320 Speaker 2: to begin with. You know, I think and that we're 87 00:04:16,360 --> 00:04:18,480 Speaker 2: not the only ones talking about this. But you know, 88 00:04:18,560 --> 00:04:20,440 Speaker 2: when you look at the S and P five hundred 89 00:04:20,560 --> 00:04:24,120 Speaker 2: making up seventy percent of the MSCI global you know, 90 00:04:24,200 --> 00:04:29,039 Speaker 2: people talking about US exceptionalism that if it was you know, preordained, 91 00:04:29,720 --> 00:04:32,400 Speaker 2: you know, I mean, that was going to happen inevitably. 92 00:04:32,720 --> 00:04:37,480 Speaker 2: And I think this development is only accelerating that. Our 93 00:04:38,000 --> 00:04:40,919 Speaker 2: work and you know, talking to dealers and everything else, 94 00:04:41,880 --> 00:04:45,200 Speaker 2: you know, suggests that we're not seeing outright selling of 95 00:04:45,279 --> 00:04:49,320 Speaker 2: treasuries from foreign governments. But let's be clear, foreign governments 96 00:04:49,320 --> 00:04:51,880 Speaker 2: have not been net buyers of treasuries for quite a 97 00:04:51,880 --> 00:04:55,680 Speaker 2: long time. I think the I think the movement in 98 00:04:55,720 --> 00:04:59,400 Speaker 2: currencies is probably more function of stocks than it is treasuries. 99 00:04:59,440 --> 00:05:03,679 Speaker 2: We we have seen flows move from the United States 100 00:05:03,720 --> 00:05:06,919 Speaker 2: to these other regions, particularly Europe and back to China 101 00:05:06,960 --> 00:05:09,440 Speaker 2: to some degree. Those have been the two biggest beneficiary 102 00:05:09,920 --> 00:05:13,599 Speaker 2: of maybe US asset prices coming down, and this idea 103 00:05:13,640 --> 00:05:17,200 Speaker 2: of too much capital concentration in the United States. The 104 00:05:17,320 --> 00:05:21,520 Speaker 2: question now is have we adjusted enough, you know, has 105 00:05:21,600 --> 00:05:23,200 Speaker 2: that happened? Have we seen it and I would just 106 00:05:23,240 --> 00:05:25,880 Speaker 2: point out again and this process started really three four 107 00:05:25,920 --> 00:05:28,920 Speaker 2: or five months ago, and you know, we're probably a 108 00:05:28,920 --> 00:05:32,520 Speaker 2: good way down that road. We are still somewhat barished 109 00:05:32,520 --> 00:05:36,240 Speaker 2: on the US dollar because US dollar is overvalued, and 110 00:05:36,320 --> 00:05:39,680 Speaker 2: it's not just a function of flows, but that will 111 00:05:39,680 --> 00:05:41,240 Speaker 2: accelerate the adjustment process. 112 00:05:41,480 --> 00:05:44,719 Speaker 1: What's the signal for equities for bottom. 113 00:05:45,640 --> 00:05:47,080 Speaker 2: Well for US And we spent a lot of time 114 00:05:47,120 --> 00:05:50,200 Speaker 2: on this, you know, like I said, we think this 115 00:05:50,279 --> 00:05:53,920 Speaker 2: correction is well advanced in terms of time and price, 116 00:05:54,560 --> 00:05:58,360 Speaker 2: and so what we're looking for is a retest probably 117 00:05:58,360 --> 00:06:00,400 Speaker 2: of those lows we saw last week. It doesn't mean 118 00:06:00,400 --> 00:06:01,680 Speaker 2: you have to go all the way back down there, 119 00:06:01,720 --> 00:06:05,760 Speaker 2: but like Monday to me was a classic capitulation day. 120 00:06:06,320 --> 00:06:09,039 Speaker 2: We see it in all the data, massive volume. It 121 00:06:09,080 --> 00:06:12,279 Speaker 2: was almost a panic, and that means that's probably going 122 00:06:12,320 --> 00:06:15,279 Speaker 2: to be the momentum low for this correction, which is 123 00:06:15,320 --> 00:06:18,480 Speaker 2: now officially sort of a bear market anyway you slice it. 124 00:06:18,920 --> 00:06:21,000 Speaker 2: And so usually when you have a bear market, you know, 125 00:06:21,080 --> 00:06:24,840 Speaker 2: capitulation like that, it takes time to heal. And so 126 00:06:24,880 --> 00:06:27,280 Speaker 2: what we're looking for is sort of backing and filling, 127 00:06:27,680 --> 00:06:30,120 Speaker 2: you know, chopping market for the next month or two 128 00:06:30,120 --> 00:06:33,080 Speaker 2: at least maybe it goes further than that, and then 129 00:06:33,400 --> 00:06:36,000 Speaker 2: on a retest, we want to see lower momentum and 130 00:06:36,040 --> 00:06:38,560 Speaker 2: we want to see, you know, certain things start to 131 00:06:38,600 --> 00:06:41,520 Speaker 2: outperform at the bottom, and we're just not there yet. 132 00:06:41,520 --> 00:06:45,760 Speaker 2: So we're prepared for another thirty sixty days minimum of 133 00:06:46,000 --> 00:06:48,640 Speaker 2: high volatility and a lot of price a lot of 134 00:06:48,640 --> 00:06:51,840 Speaker 2: price movement. But I'm not in the camp that we 135 00:06:51,880 --> 00:06:55,200 Speaker 2: still can't see something positive by the end of the year, 136 00:06:55,240 --> 00:06:58,640 Speaker 2: where like we've had all the growth negative impacts now 137 00:06:59,040 --> 00:07:00,720 Speaker 2: and then the growth post the things that they're going 138 00:07:00,760 --> 00:07:02,200 Speaker 2: to be doing to start to show up at the 139 00:07:02,240 --> 00:07:04,239 Speaker 2: end of the year, and the markets will the markets 140 00:07:04,240 --> 00:07:05,200 Speaker 2: will figure that out right