1 00:00:02,520 --> 00:00:08,680 Speaker 1: Bloomberg Audio Studios, podcasts, radio News, Truth, Lucky. 2 00:00:08,400 --> 00:00:13,360 Speaker 2: It, Morgan Stanley, how about Andrew Parker, Michelle, We've heard Dana, 3 00:00:14,320 --> 00:00:18,240 Speaker 2: Diane Ding, I should say, and my eyes are failing 4 00:00:18,280 --> 00:00:21,120 Speaker 2: me and Nicholas Lentini. They get to work with Mike Wilson, 5 00:00:21,160 --> 00:00:24,120 Speaker 2: which is a good and wonderful thing. Michael Wilson, thank 6 00:00:24,120 --> 00:00:26,639 Speaker 2: you so much for joining this morning. You called a 7 00:00:26,680 --> 00:00:30,640 Speaker 2: new bullmarket and you say you have a higher conviction 8 00:00:31,360 --> 00:00:33,000 Speaker 2: into twenty twenty six. 9 00:00:33,400 --> 00:00:35,960 Speaker 3: Why, yeah, thanks Tom. 10 00:00:36,200 --> 00:00:38,640 Speaker 4: I mean we talked about this in our midyear outlook 11 00:00:38,800 --> 00:00:41,559 Speaker 4: going back to May, which we felt like the April 12 00:00:41,600 --> 00:00:44,120 Speaker 4: lows would be a durable low for a lot of 13 00:00:44,120 --> 00:00:46,640 Speaker 4: different reasons. I'll try to go through them in no 14 00:00:46,720 --> 00:00:49,400 Speaker 4: specific order, but I mean, you know, we have had 15 00:00:49,440 --> 00:00:51,080 Speaker 4: the view coming into this year that it was going 16 00:00:51,159 --> 00:00:53,599 Speaker 4: to be a tough first half because earnings revisions were 17 00:00:53,600 --> 00:00:57,520 Speaker 4: coming down pretty sharply for a lot of reasons, most 18 00:00:57,560 --> 00:01:01,480 Speaker 4: notably the AI capex cycle was the celerating. We still 19 00:01:01,520 --> 00:01:03,720 Speaker 4: had what I would call a rolling recession in many 20 00:01:04,120 --> 00:01:07,080 Speaker 4: industries that were struggling, and the revisions were coming down. 21 00:01:07,080 --> 00:01:09,280 Speaker 4: So what tariffs did was it sort of culminated that 22 00:01:09,880 --> 00:01:13,200 Speaker 4: decline into April. And as you know, I mean you've 23 00:01:13,240 --> 00:01:15,840 Speaker 4: been around the block like me, I mean, market's bottom 24 00:01:16,000 --> 00:01:18,720 Speaker 4: on bad news, okay, And so that I would have 25 00:01:18,920 --> 00:01:22,479 Speaker 4: likened the Liberation Day announcement to sort of a natural 26 00:01:22,520 --> 00:01:27,400 Speaker 4: disaster that basically, you know, capitulated, everybody capitulated. So that 27 00:01:27,600 --> 00:01:30,520 Speaker 4: revision of revision factors the main driver when we're bullish, 28 00:01:30,560 --> 00:01:32,800 Speaker 4: we think it's a bull market, is the revision factors 29 00:01:32,800 --> 00:01:36,800 Speaker 4: for earnings are have shot higher. And you've seen our notes, Okay, 30 00:01:36,840 --> 00:01:40,440 Speaker 4: So like that's that is doesn't happen every year. That 31 00:01:41,240 --> 00:01:43,440 Speaker 4: is as extreme as we saw coming out of the 32 00:01:43,480 --> 00:01:47,000 Speaker 4: COVID lows in March of twenty twenty. Okay, it's as 33 00:01:47,200 --> 00:01:49,320 Speaker 4: extreme as we saw coming out of nine to eleven. 34 00:01:49,600 --> 00:01:52,520 Speaker 4: It looked like a recession, It walks like a recession, 35 00:01:52,560 --> 00:01:53,720 Speaker 4: It priced like a recession. 36 00:01:53,840 --> 00:01:57,000 Speaker 3: So that's it, right, Okay. This is a really critical question, folks. 37 00:01:57,080 --> 00:02:01,240 Speaker 2: We all understand the Trump legislation, the Beautiful Bill and 38 00:02:01,760 --> 00:02:04,480 Speaker 2: all that as some form of stimulus forward at least 39 00:02:04,480 --> 00:02:06,480 Speaker 2: out one two years, maybe three years. 40 00:02:06,760 --> 00:02:08,520 Speaker 3: It Morgan Stanley, Mike Wilson. 41 00:02:08,560 --> 00:02:13,480 Speaker 2: The key question is the linkage of potential rate cuts 42 00:02:14,040 --> 00:02:15,639 Speaker 2: to equity enthusiasm. 43 00:02:16,000 --> 00:02:18,000 Speaker 3: I don't have a straight answer on that yet. 44 00:02:18,240 --> 00:02:23,320 Speaker 2: Can we link Powell, our future chairman, rate cuts into 45 00:02:23,440 --> 00:02:24,480 Speaker 2: an equity lift? 46 00:02:26,120 --> 00:02:28,240 Speaker 4: Yeah, well, I think, I mean, as usual, the markets 47 00:02:28,280 --> 00:02:30,720 Speaker 4: get ahead of this, and what the markets are anticipating now, 48 00:02:30,919 --> 00:02:32,880 Speaker 4: the bond market and the equity markets that the FED 49 00:02:32,919 --> 00:02:35,560 Speaker 4: will be cutting sometime in the next you know, two 50 00:02:35,639 --> 00:02:38,440 Speaker 4: to six months. And you know, even our house call, 51 00:02:38,520 --> 00:02:40,240 Speaker 4: I mean, our house calls for no cuts this year, 52 00:02:40,240 --> 00:02:42,120 Speaker 4: but then they have seven cuts next year. I mean, 53 00:02:42,120 --> 00:02:45,840 Speaker 4: that's like wildly bullish for equities. Okay, so you know 54 00:02:46,080 --> 00:02:48,760 Speaker 4: it's you almost have the perfect setup, Tom, because what 55 00:02:48,919 --> 00:02:51,880 Speaker 4: you have now is lagging economic data, which is what 56 00:02:51,919 --> 00:02:54,519 Speaker 4: the FED uses to make decisions, and you have you 57 00:02:54,600 --> 00:02:56,760 Speaker 4: already had the equity market in ear any divisions telling 58 00:02:56,760 --> 00:02:59,880 Speaker 4: you what's going to happen, So you know they're looking backwards. 59 00:03:00,000 --> 00:03:01,919 Speaker 1: They're gonna be looking at lagging labor. 60 00:03:01,680 --> 00:03:04,120 Speaker 4: Data, you know, and then of course lagging inflation data, 61 00:03:04,160 --> 00:03:06,680 Speaker 4: which should come down ultimately later this year next year, 62 00:03:06,960 --> 00:03:08,080 Speaker 4: and they're going to cut into that. 63 00:03:08,280 --> 00:03:09,480 Speaker 1: And but the but you. 64 00:03:09,400 --> 00:03:11,480 Speaker 4: Know, there's not going to be a knock on negative 65 00:03:11,480 --> 00:03:14,320 Speaker 4: effect for earning revisions in the way that people kind 66 00:03:14,320 --> 00:03:17,200 Speaker 4: of assume when you get that sort of decline in 67 00:03:17,400 --> 00:03:20,000 Speaker 4: labor data. In fact, I would argue, because it's gradual 68 00:03:20,320 --> 00:03:22,440 Speaker 4: that we're going to see revisions go up, because you 69 00:03:22,440 --> 00:03:26,400 Speaker 4: know when companies reduce headcount, it actually accrues to margins. 70 00:03:27,360 --> 00:03:30,760 Speaker 5: Mike, what are what is screening well for you? 71 00:03:30,800 --> 00:03:30,920 Speaker 3: Now? 72 00:03:30,960 --> 00:03:32,959 Speaker 5: I'm not sure if it's sectors that you guys screened 73 00:03:33,000 --> 00:03:36,440 Speaker 5: by or different factors that you screen by. How are 74 00:03:36,480 --> 00:03:38,840 Speaker 5: you looking at this market and maybe where opportunities might. 75 00:03:38,680 --> 00:03:40,680 Speaker 1: Be right, So we do both. 76 00:03:40,760 --> 00:03:44,600 Speaker 4: We look at factor revisions, we look at sector industry revisions. 77 00:03:44,280 --> 00:03:45,480 Speaker 1: And we look at the stock level too. 78 00:03:45,480 --> 00:03:48,160 Speaker 4: It works in all those areas, and so we've been 79 00:03:48,240 --> 00:03:53,960 Speaker 4: rightly positioned, really since April to be overweight financials industrials. 80 00:03:53,960 --> 00:03:57,680 Speaker 4: Those are the two favorites, and also software to some degree, 81 00:03:57,880 --> 00:03:59,440 Speaker 4: and those have been the areas where the revisions have 82 00:03:59,480 --> 00:04:02,480 Speaker 4: been the longest, and I think that probably could continue. 83 00:04:02,800 --> 00:04:05,120 Speaker 1: And so at the end of the day, I do 84 00:04:05,160 --> 00:04:06,240 Speaker 1: think the biggest. 85 00:04:05,840 --> 00:04:08,480 Speaker 4: Opportunity going forward is the areas that have not seen 86 00:04:08,560 --> 00:04:11,440 Speaker 4: those revisions yet. So let's talk about the industries where 87 00:04:11,480 --> 00:04:14,960 Speaker 4: we've been sort of in this rolling recession. Housing related Okay, 88 00:04:15,080 --> 00:04:18,479 Speaker 4: commodity related some of the consumer goods areas which are 89 00:04:18,480 --> 00:04:20,200 Speaker 4: going to feel the effects of terrors now. So in 90 00:04:20,200 --> 00:04:22,320 Speaker 4: the very short term, we actually think revision breath could 91 00:04:22,320 --> 00:04:25,400 Speaker 4: come down a bit as some of these you know, terrorts. 92 00:04:25,160 --> 00:04:27,240 Speaker 1: Flow through the cost of good soul. But that's just 93 00:04:27,279 --> 00:04:27,600 Speaker 1: going to. 94 00:04:27,560 --> 00:04:30,719 Speaker 4: Create the next buying opportunity perhaps in these areas that 95 00:04:30,720 --> 00:04:32,919 Speaker 4: are lagged, even small caps, because they will love the 96 00:04:32,960 --> 00:04:34,559 Speaker 4: fact that that's cutting rates at some point. 97 00:04:35,880 --> 00:04:38,440 Speaker 5: Mike, one of the themes today and really for the 98 00:04:38,480 --> 00:04:42,240 Speaker 5: last period of time has been concentration risk. In this marketplace, 99 00:04:42,279 --> 00:04:44,479 Speaker 5: it seems like only a handful of stocks are driving 100 00:04:44,480 --> 00:04:47,640 Speaker 5: the performance. But I think what we're kind of coming 101 00:04:48,000 --> 00:04:50,800 Speaker 5: to the conclusion of our least rationalizing is because that's 102 00:04:50,800 --> 00:04:52,720 Speaker 5: where the earnest growth is, that's where the free cash 103 00:04:52,760 --> 00:04:55,520 Speaker 5: flow is. How do you think about that issue? 104 00:04:56,279 --> 00:04:58,560 Speaker 1: You're exactly right. I mean, the market's not stupid. 105 00:04:58,640 --> 00:05:01,560 Speaker 4: I mean, the first of all, what drove the market 106 00:05:01,640 --> 00:05:04,760 Speaker 4: lower in the first quarter the MAG seven You know why, 107 00:05:04,839 --> 00:05:06,160 Speaker 4: because the MAG seven orange. 108 00:05:05,880 --> 00:05:08,040 Speaker 1: Divisions were terrible. In the first quarter. We had an 109 00:05:08,080 --> 00:05:09,560 Speaker 1: AI camp bACC acceleration. 110 00:05:09,720 --> 00:05:11,880 Speaker 4: We had questions around whether it's going to generate ROI 111 00:05:12,440 --> 00:05:15,280 Speaker 4: revenue growth kind of decelerated a bit, so you know, 112 00:05:15,520 --> 00:05:18,200 Speaker 4: it happened for a reason, but has nothing to do 113 00:05:18,360 --> 00:05:19,600 Speaker 4: with teriffs, Okay. 114 00:05:19,920 --> 00:05:21,120 Speaker 1: It has everything to do which is. 115 00:05:21,360 --> 00:05:24,160 Speaker 4: The natural evolution of this AI cycle that's going on. 116 00:05:24,680 --> 00:05:27,000 Speaker 1: So I think, you know, coming out of the April lows. 117 00:05:27,600 --> 00:05:29,880 Speaker 4: The reason why the MAG seven led is well, hey, 118 00:05:29,880 --> 00:05:32,440 Speaker 4: they're big and liquid, everybody loves them, but also because 119 00:05:33,120 --> 00:05:35,640 Speaker 4: they were seeing a rate of change bottom in the 120 00:05:35,720 --> 00:05:36,480 Speaker 4: revision factors. 121 00:05:36,520 --> 00:05:38,640 Speaker 1: I'll give you two huge catalysts for that. 122 00:05:38,760 --> 00:05:42,560 Speaker 4: The weaker dollar, okay, which accrues to the large multinationals, 123 00:05:42,600 --> 00:05:45,320 Speaker 4: particularly some of the MAGS seven. And the second one 124 00:05:45,360 --> 00:05:48,760 Speaker 4: was that we saw that you know, U Nvidia could 125 00:05:48,839 --> 00:05:51,240 Speaker 4: no longer sell they could sell they could no longer 126 00:05:51,240 --> 00:05:53,480 Speaker 4: sell chips to China, and they took a big write 127 00:05:53,520 --> 00:05:56,240 Speaker 4: down on inventory. But now they can sell those chips 128 00:05:56,279 --> 00:05:58,400 Speaker 4: when the inventory is at zero. So what does that 129 00:05:58,440 --> 00:06:01,360 Speaker 4: tell you? Gross margins are going to be basically manufactured 130 00:06:01,440 --> 00:06:03,600 Speaker 4: for the next year. So there's a lot of reasons, 131 00:06:03,960 --> 00:06:06,000 Speaker 4: you know, why stocks do what they do, But the 132 00:06:06,080 --> 00:06:08,599 Speaker 4: main reason we for our whole franchise, as you know, 133 00:06:08,800 --> 00:06:12,880 Speaker 4: focuses on earnings, not lagging economic Data. 134 00:06:13,320 --> 00:06:16,239 Speaker 2: Mike Wilson with us across your commute this morning, across 135 00:06:16,240 --> 00:06:18,400 Speaker 2: the nation, I should say, on YouTube as well, in 136 00:06:18,480 --> 00:06:20,880 Speaker 2: the office and of course at home. 137 00:06:21,000 --> 00:06:21,480 Speaker 3: YouTube. 138 00:06:21,520 --> 00:06:24,159 Speaker 2: Subscribe to Bloomberg Podcast, growing each and every day.