WEBVTT - Chief US Equity Strategist at Morgan Stanley Mike Wilson

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News, Truth, Lucky.

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<v Speaker 2>It, Morgan Stanley, how about Andrew Parker, Michelle, We've heard Dana,

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<v Speaker 2>Diane Ding, I should say, and my eyes are failing

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<v Speaker 2>me and Nicholas Lentini. They get to work with Mike Wilson,

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<v Speaker 2>which is a good and wonderful thing. Michael Wilson, thank

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<v Speaker 2>you so much for joining this morning. You called a

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<v Speaker 2>new bullmarket and you say you have a higher conviction

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<v Speaker 2>into twenty twenty six.

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<v Speaker 3>Why, yeah, thanks Tom.

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<v Speaker 4>I mean we talked about this in our midyear outlook

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<v Speaker 4>going back to May, which we felt like the April

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<v Speaker 4>lows would be a durable low for a lot of

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<v Speaker 4>different reasons. I'll try to go through them in no

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<v Speaker 4>specific order, but I mean, you know, we have had

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<v Speaker 4>the view coming into this year that it was going

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<v Speaker 4>to be a tough first half because earnings revisions were

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<v Speaker 4>coming down pretty sharply for a lot of reasons, most

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<v Speaker 4>notably the AI capex cycle was the celerating. We still

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<v Speaker 4>had what I would call a rolling recession in many

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<v Speaker 4>industries that were struggling, and the revisions were coming down.

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<v Speaker 4>So what tariffs did was it sort of culminated that

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<v Speaker 4>decline into April. And as you know, I mean you've

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<v Speaker 4>been around the block like me, I mean, market's bottom

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<v Speaker 4>on bad news, okay, And so that I would have

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<v Speaker 4>likened the Liberation Day announcement to sort of a natural

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<v Speaker 4>disaster that basically, you know, capitulated, everybody capitulated. So that

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<v Speaker 4>revision of revision factors the main driver when we're bullish,

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<v Speaker 4>we think it's a bull market, is the revision factors

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<v Speaker 4>for earnings are have shot higher. And you've seen our notes, Okay,

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<v Speaker 4>So like that's that is doesn't happen every year. That

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<v Speaker 4>is as extreme as we saw coming out of the

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<v Speaker 4>COVID lows in March of twenty twenty. Okay, it's as

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<v Speaker 4>extreme as we saw coming out of nine to eleven.

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<v Speaker 4>It looked like a recession, It walks like a recession,

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<v Speaker 4>It priced like a recession.

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<v Speaker 3>So that's it, right, Okay. This is a really critical question, folks.

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<v Speaker 2>We all understand the Trump legislation, the Beautiful Bill and

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<v Speaker 2>all that as some form of stimulus forward at least

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<v Speaker 2>out one two years, maybe three years.

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<v Speaker 3>It Morgan Stanley, Mike Wilson.

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<v Speaker 2>The key question is the linkage of potential rate cuts

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<v Speaker 2>to equity enthusiasm.

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<v Speaker 3>I don't have a straight answer on that yet.

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<v Speaker 2>Can we link Powell, our future chairman, rate cuts into

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<v Speaker 2>an equity lift?

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<v Speaker 4>Yeah, well, I think, I mean, as usual, the markets

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<v Speaker 4>get ahead of this, and what the markets are anticipating now,

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<v Speaker 4>the bond market and the equity markets that the FED

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<v Speaker 4>will be cutting sometime in the next you know, two

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<v Speaker 4>to six months. And you know, even our house call,

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<v Speaker 4>I mean, our house calls for no cuts this year,

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<v Speaker 4>but then they have seven cuts next year. I mean,

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<v Speaker 4>that's like wildly bullish for equities. Okay, so you know

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<v Speaker 4>it's you almost have the perfect setup, Tom, because what

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<v Speaker 4>you have now is lagging economic data, which is what

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<v Speaker 4>the FED uses to make decisions, and you have you

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<v Speaker 4>already had the equity market in ear any divisions telling

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<v Speaker 4>you what's going to happen, So you know they're looking backwards.

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<v Speaker 1>They're gonna be looking at lagging labor.

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<v Speaker 4>Data, you know, and then of course lagging inflation data,

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<v Speaker 4>which should come down ultimately later this year next year,

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<v Speaker 4>and they're going to cut into that.

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<v Speaker 1>And but the but you.

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<v Speaker 4>Know, there's not going to be a knock on negative

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<v Speaker 4>effect for earning revisions in the way that people kind

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<v Speaker 4>of assume when you get that sort of decline in

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<v Speaker 4>labor data. In fact, I would argue, because it's gradual

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<v Speaker 4>that we're going to see revisions go up, because you

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<v Speaker 4>know when companies reduce headcount, it actually accrues to margins.

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<v Speaker 5>Mike, what are what is screening well for you?

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<v Speaker 3>Now?

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<v Speaker 5>I'm not sure if it's sectors that you guys screened

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<v Speaker 5>by or different factors that you screen by. How are

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<v Speaker 5>you looking at this market and maybe where opportunities might.

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<v Speaker 1>Be right, So we do both.

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<v Speaker 4>We look at factor revisions, we look at sector industry revisions.

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<v Speaker 1>And we look at the stock level too.

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<v Speaker 4>It works in all those areas, and so we've been

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<v Speaker 4>rightly positioned, really since April to be overweight financials industrials.

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<v Speaker 4>Those are the two favorites, and also software to some degree,

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<v Speaker 4>and those have been the areas where the revisions have

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<v Speaker 4>been the longest, and I think that probably could continue.

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<v Speaker 1>And so at the end of the day, I do

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<v Speaker 1>think the biggest.

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<v Speaker 4>Opportunity going forward is the areas that have not seen

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<v Speaker 4>those revisions yet. So let's talk about the industries where

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<v Speaker 4>we've been sort of in this rolling recession. Housing related Okay,

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<v Speaker 4>commodity related some of the consumer goods areas which are

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<v Speaker 4>going to feel the effects of terrors now. So in

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<v Speaker 4>the very short term, we actually think revision breath could

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<v Speaker 4>come down a bit as some of these you know, terrorts.

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<v Speaker 1>Flow through the cost of good soul. But that's just

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<v Speaker 1>going to.

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<v Speaker 4>Create the next buying opportunity perhaps in these areas that

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<v Speaker 4>are lagged, even small caps, because they will love the

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<v Speaker 4>fact that that's cutting rates at some point.

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<v Speaker 5>Mike, one of the themes today and really for the

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<v Speaker 5>last period of time has been concentration risk. In this marketplace,

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<v Speaker 5>it seems like only a handful of stocks are driving

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<v Speaker 5>the performance. But I think what we're kind of coming

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<v Speaker 5>to the conclusion of our least rationalizing is because that's

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<v Speaker 5>where the earnest growth is, that's where the free cash

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<v Speaker 5>flow is. How do you think about that issue?

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<v Speaker 1>You're exactly right. I mean, the market's not stupid.

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<v Speaker 4>I mean, the first of all, what drove the market

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<v Speaker 4>lower in the first quarter the MAG seven You know why,

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<v Speaker 4>because the MAG seven orange.

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<v Speaker 1>Divisions were terrible. In the first quarter. We had an

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<v Speaker 1>AI camp bACC acceleration.

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<v Speaker 4>We had questions around whether it's going to generate ROI

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<v Speaker 4>revenue growth kind of decelerated a bit, so you know,

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<v Speaker 4>it happened for a reason, but has nothing to do

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<v Speaker 4>with teriffs, Okay.

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<v Speaker 1>It has everything to do which is.

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<v Speaker 4>The natural evolution of this AI cycle that's going on.

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<v Speaker 1>So I think, you know, coming out of the April lows.

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<v Speaker 4>The reason why the MAG seven led is well, hey,

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<v Speaker 4>they're big and liquid, everybody loves them, but also because

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<v Speaker 4>they were seeing a rate of change bottom in the

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<v Speaker 4>revision factors.

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<v Speaker 1>I'll give you two huge catalysts for that.

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<v Speaker 4>The weaker dollar, okay, which accrues to the large multinationals,

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<v Speaker 4>particularly some of the MAGS seven. And the second one

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<v Speaker 4>was that we saw that you know, U Nvidia could

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<v Speaker 4>no longer sell they could sell they could no longer

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<v Speaker 4>sell chips to China, and they took a big write

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<v Speaker 4>down on inventory. But now they can sell those chips

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<v Speaker 4>when the inventory is at zero. So what does that

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<v Speaker 4>tell you? Gross margins are going to be basically manufactured

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<v Speaker 4>for the next year. So there's a lot of reasons,

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<v Speaker 4>you know, why stocks do what they do, But the

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<v Speaker 4>main reason we for our whole franchise, as you know,

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<v Speaker 4>focuses on earnings, not lagging economic Data.

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<v Speaker 2>Mike Wilson with us across your commute this morning, across

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<v Speaker 2>the nation, I should say, on YouTube as well, in

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<v Speaker 2>the office and of course at home.

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<v Speaker 3>YouTube.

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