Speaker 1: Bloomberg Audio Studios, podcasts, radio News, Truth, Lucky.
Speaker 2: It, Morgan Stanley, how about Andrew Parker, Michelle, We've heard Dana,
Speaker 2: Diane Ding, I should say, and my eyes are failing
Speaker 2: me and Nicholas Lentini. They get to work with Mike Wilson,
Speaker 2: which is a good and wonderful thing. Michael Wilson, thank
Speaker 2: you so much for joining this morning. You called a
Speaker 2: new bullmarket and you say you have a higher conviction
Speaker 2: into twenty twenty six.
Speaker 3: Why, yeah, thanks Tom.
Speaker 4: I mean we talked about this in our midyear outlook
Speaker 4: going back to May, which we felt like the April
Speaker 4: lows would be a durable low for a lot of
Speaker 4: different reasons. I'll try to go through them in no
Speaker 4: specific order, but I mean, you know, we have had
Speaker 4: the view coming into this year that it was going
Speaker 4: to be a tough first half because earnings revisions were
Speaker 4: coming down pretty sharply for a lot of reasons, most
Speaker 4: notably the AI capex cycle was the celerating. We still
Speaker 4: had what I would call a rolling recession in many
Speaker 4: industries that were struggling, and the revisions were coming down.
Speaker 4: So what tariffs did was it sort of culminated that
Speaker 4: decline into April. And as you know, I mean you've
Speaker 4: been around the block like me, I mean, market's bottom
Speaker 4: on bad news, okay, And so that I would have
Speaker 4: likened the Liberation Day announcement to sort of a natural
Speaker 4: disaster that basically, you know, capitulated, everybody capitulated. So that
Speaker 4: revision of revision factors the main driver when we're bullish,
Speaker 4: we think it's a bull market, is the revision factors
Speaker 4: for earnings are have shot higher. And you've seen our notes, Okay,
Speaker 4: So like that's that is doesn't happen every year. That
Speaker 4: is as extreme as we saw coming out of the
Speaker 4: COVID lows in March of twenty twenty. Okay, it's as
Speaker 4: extreme as we saw coming out of nine to eleven.
Speaker 4: It looked like a recession, It walks like a recession,
Speaker 4: It priced like a recession.
Speaker 3: So that's it, right, Okay. This is a really critical question, folks.
Speaker 2: We all understand the Trump legislation, the Beautiful Bill and
Speaker 2: all that as some form of stimulus forward at least
Speaker 2: out one two years, maybe three years.
Speaker 3: It Morgan Stanley, Mike Wilson.
Speaker 2: The key question is the linkage of potential rate cuts
Speaker 2: to equity enthusiasm.
Speaker 3: I don't have a straight answer on that yet.
Speaker 2: Can we link Powell, our future chairman, rate cuts into
Speaker 2: an equity lift?
Speaker 4: Yeah, well, I think, I mean, as usual, the markets
Speaker 4: get ahead of this, and what the markets are anticipating now,
Speaker 4: the bond market and the equity markets that the FED
Speaker 4: will be cutting sometime in the next you know, two
Speaker 4: to six months. And you know, even our house call,
Speaker 4: I mean, our house calls for no cuts this year,
Speaker 4: but then they have seven cuts next year. I mean,
Speaker 4: that's like wildly bullish for equities. Okay, so you know
Speaker 4: it's you almost have the perfect setup, Tom, because what
Speaker 4: you have now is lagging economic data, which is what
Speaker 4: the FED uses to make decisions, and you have you
Speaker 4: already had the equity market in ear any divisions telling
Speaker 4: you what's going to happen, So you know they're looking backwards.
Speaker 1: They're gonna be looking at lagging labor.
Speaker 4: Data, you know, and then of course lagging inflation data,
Speaker 4: which should come down ultimately later this year next year,
Speaker 4: and they're going to cut into that.
Speaker 1: And but the but you.
Speaker 4: Know, there's not going to be a knock on negative
Speaker 4: effect for earning revisions in the way that people kind
Speaker 4: of assume when you get that sort of decline in
Speaker 4: labor data. In fact, I would argue, because it's gradual
Speaker 4: that we're going to see revisions go up, because you
Speaker 4: know when companies reduce headcount, it actually accrues to margins.
Speaker 5: Mike, what are what is screening well for you?
Speaker 3: Now?
Speaker 5: I'm not sure if it's sectors that you guys screened
Speaker 5: by or different factors that you screen by. How are
Speaker 5: you looking at this market and maybe where opportunities might.
Speaker 1: Be right, So we do both.
Speaker 4: We look at factor revisions, we look at sector industry revisions.
Speaker 1: And we look at the stock level too.
Speaker 4: It works in all those areas, and so we've been
Speaker 4: rightly positioned, really since April to be overweight financials industrials.
Speaker 4: Those are the two favorites, and also software to some degree,
Speaker 4: and those have been the areas where the revisions have
Speaker 4: been the longest, and I think that probably could continue.
Speaker 1: And so at the end of the day, I do
Speaker 1: think the biggest.
Speaker 4: Opportunity going forward is the areas that have not seen
Speaker 4: those revisions yet. So let's talk about the industries where
Speaker 4: we've been sort of in this rolling recession. Housing related Okay,
Speaker 4: commodity related some of the consumer goods areas which are
Speaker 4: going to feel the effects of terrors now. So in
Speaker 4: the very short term, we actually think revision breath could
Speaker 4: come down a bit as some of these you know, terrorts.
Speaker 1: Flow through the cost of good soul. But that's just
Speaker 1: going to.
Speaker 4: Create the next buying opportunity perhaps in these areas that
Speaker 4: are lagged, even small caps, because they will love the
Speaker 4: fact that that's cutting rates at some point.
Speaker 5: Mike, one of the themes today and really for the
Speaker 5: last period of time has been concentration risk. In this marketplace,
Speaker 5: it seems like only a handful of stocks are driving
Speaker 5: the performance. But I think what we're kind of coming
Speaker 5: to the conclusion of our least rationalizing is because that's
Speaker 5: where the earnest growth is, that's where the free cash
Speaker 5: flow is. How do you think about that issue?
Speaker 1: You're exactly right. I mean, the market's not stupid.
Speaker 4: I mean, the first of all, what drove the market
Speaker 4: lower in the first quarter the MAG seven You know why,
Speaker 4: because the MAG seven orange.
Speaker 1: Divisions were terrible. In the first quarter. We had an
Speaker 1: AI camp bACC acceleration.
Speaker 4: We had questions around whether it's going to generate ROI
Speaker 4: revenue growth kind of decelerated a bit, so you know,
Speaker 4: it happened for a reason, but has nothing to do
Speaker 4: with teriffs, Okay.
Speaker 1: It has everything to do which is.
Speaker 4: The natural evolution of this AI cycle that's going on.
Speaker 1: So I think, you know, coming out of the April lows.
Speaker 4: The reason why the MAG seven led is well, hey,
Speaker 4: they're big and liquid, everybody loves them, but also because
Speaker 4: they were seeing a rate of change bottom in the
Speaker 4: revision factors.
Speaker 1: I'll give you two huge catalysts for that.
Speaker 4: The weaker dollar, okay, which accrues to the large multinationals,
Speaker 4: particularly some of the MAGS seven. And the second one
Speaker 4: was that we saw that you know, U Nvidia could
Speaker 4: no longer sell they could sell they could no longer
Speaker 4: sell chips to China, and they took a big write
Speaker 4: down on inventory. But now they can sell those chips
Speaker 4: when the inventory is at zero. So what does that
Speaker 4: tell you? Gross margins are going to be basically manufactured
Speaker 4: for the next year. So there's a lot of reasons,
Speaker 4: you know, why stocks do what they do, But the
Speaker 4: main reason we for our whole franchise, as you know,
Speaker 4: focuses on earnings, not lagging economic Data.
Speaker 2: Mike Wilson with us across your commute this morning, across
Speaker 2: the nation, I should say, on YouTube as well, in
Speaker 2: the office and of course at home.
Speaker 3: YouTube.
Speaker 2: Subscribe to Bloomberg Podcast, growing each and every day.