Speaker 1: Morgan Stanley strategist Mike Wilson cutting is twenty twenty five
Speaker 1: earnings per share forecast for the S and P five
Speaker 1: hundred firms to two hundred and fifty seven dollars from
Speaker 1: two hundred and seventy one because of the tariff uncertainty.
Speaker 1: And I'm happy to say Mike Wilson joining Bloomberg Day
Speaker 1: Break right now to discuss Mike. Let me first of all,
Speaker 1: good morning, thanks for being here. Let's start with the
Speaker 1: earning season. I got to wonder if we're going to
Speaker 1: learn more from the numbers or from the commentary and
Speaker 1: the forecasts or lack of forecasts.
Speaker 2: Well, good morning, Yeah, we'll learn something. I think what
Speaker 2: we're going to learn is that there's still a lot
Speaker 2: of uncertainty. And I want to back up a second.
Speaker 2: You know, we did cut our numbers, but it wasn't
Speaker 2: just because of terriffs. I mean, and this is a
Speaker 2: theme or you know, a thesis we've had for a while.
Speaker 2: You know, we think there's a lot more going on
Speaker 2: than just terroriffs that have been weighing on you know,
Speaker 2: growth outlooks, this and this you know correction that we've
Speaker 2: been involved in has been is very well advanced. Would
Speaker 2: say one of the biggest headwinds that doesn't get a
Speaker 2: lot of airtime is the fact that AI cap X,
Speaker 2: you know, is under pressure and this idea that you
Speaker 2: know they're getting the return on AI is just not there,
Speaker 2: and that's been a huge driver of growth. The other
Speaker 2: other things that are going on, of course, is that
Speaker 2: you know, physcal spending is under pressure, and then just
Speaker 2: the stock market itself, when you know when it's correcting
Speaker 2: here is putting pressure on asset prices in that wealth effect.
Speaker 2: That's been a huge tailwind for the last several years.
Speaker 2: So you know, the overall economy itself has not been
Speaker 2: that healthy in the United States for quite a while,
Speaker 2: and the earnings picture has not really supported the asset
Speaker 2: price inflation that we've been seeing, and of course the
Speaker 2: Fed not cutting rates anymore. So there's a lot going
Speaker 2: on besides just tariffs. To me, tariffs are almost the
Speaker 2: last piece of the earnings and that's why we decided
Speaker 2: to do it now, is like that's the cherry on
Speaker 2: top almost to this slowdown that's going on. And the
Speaker 2: question is is that tip us over into session? Right?
Speaker 2: So does a two fifty seven look something worse. And
Speaker 2: that's what we're trying to figure out during earning season
Speaker 2: is our company is now going to take action meeting,
Speaker 2: you know, layoff employees and we have a labor cycle finally,
Speaker 2: and I don't know if we're going to get clarity
Speaker 2: on that, but that's what I want to be looking for.
Speaker 1: And also on the policy front, tax cuts, because it
Speaker 1: sounds like in Washington as these negotiations take place, looking
Speaker 1: for pay for is I'm not so sure this is
Speaker 1: a certainty that we're going to see corporate tax cuts.
Speaker 2: Well, that's right. I mean, I think what they're trying
Speaker 2: to negotiate with with Congress now is really just an
Speaker 2: extension of the tax cuts that were put in place,
Speaker 2: you know, I guess seven years ago now. So I'm
Speaker 2: not anticipating additional tax cuts, but boy, if we don't
Speaker 2: get an extension on those tax cuts, that's you know,
Speaker 2: that's going to really hammer earnings for next year. In
Speaker 2: twenty twenty six.
Speaker 1: We heard the news this morning China ordering its airlines
Speaker 1: not to take any further deliveries of Boeing. I got
Speaker 1: to wonder what goes through your mind as you see
Speaker 1: this across the tape and the daily flow of evolving
Speaker 1: trade policy. Does it provide any clarity or does it
Speaker 1: add to the swirl of uncertainty? It all seems very
Speaker 1: ad hoc.
Speaker 2: Well, that's right, I mean, and you know this is
Speaker 2: going to be messy. I mean, China clearly is not,
Speaker 2: you know, bowing down in terms of you know, agreeing
Speaker 2: to everything the United States wants. And that was always
Speaker 2: going to be the case. Is that. I think the
Speaker 2: you know, the tariffs on on China that you know
Speaker 2: that those never came off, you know, even during the
Speaker 2: Biden administration. So that's that's a That's just the one
Speaker 2: that's going to be the most contentious for sure. I mean,
Speaker 2: we're going to have negotiations with various countries over the
Speaker 2: next ninety days, and I don't think anybody expects China
Speaker 2: to come running to the table to negotiate. I mean,
Speaker 2: that was always going to be the most contentious one,
Speaker 2: and this is just more evidence of that.
Speaker 1: Well, what's the message from foreign exchange in the body market?
Speaker 1: Can we infer anything with respect to foreign capital inflows
Speaker 1: into the US?
Speaker 2: Well? Number one, I think it confirms what we knew
Speaker 2: at the end of last year, which is that foreigners
Speaker 2: probably have way too many assets in the United States
Speaker 2: to begin with. You know, I think and that we're
Speaker 2: not the only ones talking about this. But you know,
Speaker 2: when you look at the S and P five hundred
Speaker 2: making up seventy percent of the MSCI global you know,
Speaker 2: people talking about US exceptionalism that if it was you know, preordained,
Speaker 2: you know, I mean, that was going to happen inevitably.
Speaker 2: And I think this development is only accelerating that. Our
Speaker 2: work and you know, talking to dealers and everything else,
Speaker 2: you know, suggests that we're not seeing outright selling of
Speaker 2: treasuries from foreign governments. But let's be clear, foreign governments
Speaker 2: have not been net buyers of treasuries for quite a
Speaker 2: long time. I think the I think the movement in
Speaker 2: currencies is probably more function of stocks than it is treasuries.
Speaker 2: We we have seen flows move from the United States
Speaker 2: to these other regions, particularly Europe and back to China
Speaker 2: to some degree. Those have been the two biggest beneficiary
Speaker 2: of maybe US asset prices coming down, and this idea
Speaker 2: of too much capital concentration in the United States. The
Speaker 2: question now is have we adjusted enough, you know, has
Speaker 2: that happened? Have we seen it and I would just
Speaker 2: point out again and this process started really three four
Speaker 2: or five months ago, and you know, we're probably a
Speaker 2: good way down that road. We are still somewhat barished
Speaker 2: on the US dollar because US dollar is overvalued, and
Speaker 2: it's not just a function of flows, but that will
Speaker 2: accelerate the adjustment process.
Speaker 1: What's the signal for equities for bottom.
Speaker 2: Well for US And we spent a lot of time
Speaker 2: on this, you know, like I said, we think this
Speaker 2: correction is well advanced in terms of time and price,
Speaker 2: and so what we're looking for is a retest probably
Speaker 2: of those lows we saw last week. It doesn't mean
Speaker 2: you have to go all the way back down there,
Speaker 2: but like Monday to me was a classic capitulation day.
Speaker 2: We see it in all the data, massive volume. It
Speaker 2: was almost a panic, and that means that's probably going
Speaker 2: to be the momentum low for this correction, which is
Speaker 2: now officially sort of a bear market anyway you slice it.
Speaker 2: And so usually when you have a bear market, you know,
Speaker 2: capitulation like that, it takes time to heal. And so
Speaker 2: what we're looking for is sort of backing and filling,
Speaker 2: you know, chopping market for the next month or two
Speaker 2: at least maybe it goes further than that, and then
Speaker 2: on a retest, we want to see lower momentum and
Speaker 2: we want to see, you know, certain things start to
Speaker 2: outperform at the bottom, and we're just not there yet.
Speaker 2: So we're prepared for another thirty sixty days minimum of
Speaker 2: high volatility and a lot of price a lot of
Speaker 2: price movement. But I'm not in the camp that we
Speaker 2: still can't see something positive by the end of the year,
Speaker 2: where like we've had all the growth negative impacts now
Speaker 2: and then the growth post the things that they're going
Speaker 2: to be doing to start to show up at the
Speaker 2: end of the year, and the markets will the markets
Speaker 2: will figure that out right