WEBVTT - Morgan Stanley Chief US Equity Strategist Mike Wilson Talks Markets

0:00:02.520 --> 0:00:07.040
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

0:00:07.840 --> 0:00:09.880
<v Speaker 2>So markets got very over sold last week with the

0:00:09.960 --> 0:00:13.080
<v Speaker 2>S and P touching correction territory. That's from Morgan Stanley saying, well,

0:00:13.160 --> 0:00:15.640
<v Speaker 2>we don't think investors should view a relief rally from

0:00:15.680 --> 0:00:18.920
<v Speaker 2>over sold levels as a sign that volatility is subsiding

0:00:18.920 --> 0:00:21.400
<v Speaker 2>in a durable manner to speed. An uncertainty around the

0:00:21.400 --> 0:00:26.200
<v Speaker 2>new policy introduction is denting investor, consumer and corporate confidence.

0:00:26.360 --> 0:00:28.760
<v Speaker 2>For more on this notice, the author himself, Mike Wilson,

0:00:28.840 --> 0:00:33.040
<v Speaker 2>Chief Investment Officer over at Morgan Stanley, is this. So

0:00:33.120 --> 0:00:34.760
<v Speaker 2>where are we right now within the market.

0:00:35.760 --> 0:00:38.600
<v Speaker 1>So good afternoon and thanks for having me on. Look,

0:00:38.680 --> 0:00:42.080
<v Speaker 1>I think so far the markets have played out I

0:00:42.080 --> 0:00:43.920
<v Speaker 1>guess the way we thought they might have, which is

0:00:43.960 --> 0:00:46.839
<v Speaker 1>that the growth expectations are coming down for all the

0:00:46.840 --> 0:00:49.760
<v Speaker 1>reasons you mentioned, in addition to the fact that we had,

0:00:50.040 --> 0:00:51.800
<v Speaker 1>you know, kind of a euphoric state at the end

0:00:51.800 --> 0:00:55.160
<v Speaker 1>of last year. The Fed stop cutting interest rates in December,

0:00:55.520 --> 0:00:57.520
<v Speaker 1>and we have this sort of questions around you know,

0:00:57.520 --> 0:01:01.360
<v Speaker 1>the sustainability of AI cap back, you know, growth acceleration.

0:01:01.520 --> 0:01:04.080
<v Speaker 1>So the market had to absorb all these different things

0:01:04.080 --> 0:01:06.120
<v Speaker 1>and that they're all pretty much growth negative in the

0:01:06.160 --> 0:01:08.400
<v Speaker 1>short term, and that's how we saw it kind of

0:01:08.440 --> 0:01:11.040
<v Speaker 1>playing out this year. That's fifty five hundred. That was

0:01:11.080 --> 0:01:13.520
<v Speaker 1>a low end of our range. We got there. Now,

0:01:13.560 --> 0:01:15.560
<v Speaker 1>the question Alex as you you know we're kind of

0:01:15.560 --> 0:01:17.520
<v Speaker 1>going through, is you know, we don't really know yet

0:01:17.600 --> 0:01:19.200
<v Speaker 1>how this is going to play through into the second

0:01:19.200 --> 0:01:21.440
<v Speaker 1>and third quarter. So I think it's about time now.

0:01:21.920 --> 0:01:23.800
<v Speaker 1>Maybe we don't have to take out fifty five hundred.

0:01:24.200 --> 0:01:27.200
<v Speaker 1>Maybe we do, depending on if the government recession, if

0:01:27.240 --> 0:01:29.199
<v Speaker 1>you want to call it a government recession, turns into

0:01:29.200 --> 0:01:32.759
<v Speaker 1>something more broad across the broader economy. And then of course,

0:01:32.800 --> 0:01:35.440
<v Speaker 1>the Fed yesterday you know, kind of showed their hand.

0:01:35.520 --> 0:01:38.280
<v Speaker 1>I would say, you know, they reduced the balance sheet

0:01:38.319 --> 0:01:41.080
<v Speaker 1>reduction by twenty billion a month and that was unexpected.

0:01:41.120 --> 0:01:43.800
<v Speaker 1>There was also some concern they might take you know,

0:01:43.840 --> 0:01:46.240
<v Speaker 1>a hike out of their dot plot. They didn't do that. So,

0:01:46.800 --> 0:01:48.960
<v Speaker 1>as we wrote last week, we think, you know, maybe

0:01:48.960 --> 0:01:51.000
<v Speaker 1>there's not a Trump put here as people were kind

0:01:51.000 --> 0:01:54.120
<v Speaker 1>of hoping for, but the Fed is still there, and

0:01:54.320 --> 0:01:56.720
<v Speaker 1>if we do have you know, worse growth outcome, I

0:01:56.720 --> 0:01:59.680
<v Speaker 1>think the FED will react pretty pretty quickly. Like last fall.

0:02:00.120 --> 0:02:02.560
<v Speaker 2>So when you mentioned waiting for the good side, right.

0:02:02.920 --> 0:02:05.240
<v Speaker 2>We tend to think we just got to get past April. Second,

0:02:05.560 --> 0:02:06.880
<v Speaker 2>is it actually going to be later in the year

0:02:06.880 --> 0:02:09.519
<v Speaker 2>we actually have to get to tax cuts and deregulation

0:02:09.600 --> 0:02:12.080
<v Speaker 2>and what that looks like before anything can really be solved.

0:02:12.560 --> 0:02:14.960
<v Speaker 1>Yeah, I would suspect that, you know, earning your vision breath,

0:02:14.960 --> 0:02:16.960
<v Speaker 1>and that's something we track closely as well as maybe

0:02:17.000 --> 0:02:20.080
<v Speaker 1>economic surprises maybe don't start to turn up until you know,

0:02:20.120 --> 0:02:22.519
<v Speaker 1>the fourth quarter, and in fact, the administration is sort

0:02:22.520 --> 0:02:25.160
<v Speaker 1>of even targeting that. But remember stocks are forward thinking,

0:02:25.480 --> 0:02:27.120
<v Speaker 1>so it doesn't mean that that, you know, stocks have

0:02:27.200 --> 0:02:29.200
<v Speaker 1>to languish all the way until the fourth quarter. We

0:02:29.480 --> 0:02:31.440
<v Speaker 1>could see things sort of you know, probably drop out

0:02:31.480 --> 0:02:34.880
<v Speaker 1>either now in certain certain circumstances where stocks have really

0:02:34.880 --> 0:02:37.000
<v Speaker 1>been hit hard, or it may take until the summer

0:02:37.080 --> 0:02:38.519
<v Speaker 1>or the fall, but it's going to be kind of

0:02:38.840 --> 0:02:41.079
<v Speaker 1>we had a rolling, kind of rolling correction. This is

0:02:41.120 --> 0:02:43.600
<v Speaker 1>going to be a rolling recovery, is my best guess.

0:02:43.680 --> 0:02:46.880
<v Speaker 3>Okay, rolling recovery where you see some so called low

0:02:46.960 --> 0:02:50.160
<v Speaker 3>quality stocks driving this short term rally. What what constitutes

0:02:50.160 --> 0:02:51.440
<v Speaker 3>a low quality stock.

0:02:51.320 --> 0:02:53.560
<v Speaker 1>Like, well, I mean a bad balance sheet, you know,

0:02:53.600 --> 0:02:57.440
<v Speaker 1>too much leverage, low margins, not that profitable, so that

0:02:57.520 --> 0:02:59.280
<v Speaker 1>those are the kinds of stocks that tend to do

0:02:59.360 --> 0:03:01.600
<v Speaker 1>the best when it's sort of a relief rally. So

0:03:01.720 --> 0:03:04.800
<v Speaker 1>we're not advocating that those should be core positions, but

0:03:04.840 --> 0:03:06.880
<v Speaker 1>that you know, if in fact, it is a low

0:03:06.960 --> 0:03:09.240
<v Speaker 1>quality rally kind of leading us for the next week

0:03:09.320 --> 0:03:11.760
<v Speaker 1>or two, that would just inform us that we probably

0:03:11.760 --> 0:03:14.320
<v Speaker 1>have more you know, wood to chop in terms of

0:03:14.360 --> 0:03:17.679
<v Speaker 1>the broader market finding you know, finding it's footing and

0:03:17.720 --> 0:03:20.000
<v Speaker 1>being able to make a march towards new highs. We

0:03:20.080 --> 0:03:23.280
<v Speaker 1>think new highs are probably out of the question in

0:03:23.320 --> 0:03:25.360
<v Speaker 1>the first half of this year, but this is but

0:03:25.440 --> 0:03:27.760
<v Speaker 1>by the second half, it's very plausible as we look

0:03:27.840 --> 0:03:29.399
<v Speaker 1>forward to twenty twenty six.

0:03:29.919 --> 0:03:31.680
<v Speaker 3>In the anytime, we've seen the dollar come off its

0:03:31.760 --> 0:03:34.560
<v Speaker 3>heights too from mid January, so lost a lot of

0:03:34.560 --> 0:03:38.120
<v Speaker 3>ground recently. At some point that recent dollar weakness will

0:03:38.160 --> 0:03:39.760
<v Speaker 3>help earnings for a lot of the S and P

0:03:39.840 --> 0:03:42.080
<v Speaker 3>five hundred companies that rely on overseas sales, won't it.

0:03:42.400 --> 0:03:44.440
<v Speaker 1>That's exactly right, and that was one of our concerns

0:03:44.480 --> 0:03:46.920
<v Speaker 1>coming into this year, is that the dollar is very

0:03:47.000 --> 0:03:49.160
<v Speaker 1>high and rates were high. So now that's reversed, right,

0:03:49.200 --> 0:03:51.400
<v Speaker 1>you have lower rates and you have a lower dollar.

0:03:51.480 --> 0:03:55.240
<v Speaker 1>And quite frankly, this this relative trade versus Europe, I

0:03:55.240 --> 0:03:56.880
<v Speaker 1>think could go the other way now as we go

0:03:56.920 --> 0:03:59.920
<v Speaker 1>into earning season. I mean, you're benefited from the stronger dollar,

0:04:00.680 --> 0:04:04.120
<v Speaker 1>you know, into first quarter you know period, and that

0:04:04.160 --> 0:04:06.920
<v Speaker 1>was one of the big positive drivers for Europe. Now

0:04:06.960 --> 0:04:09.280
<v Speaker 1>as they report first quarter earnings, it could be the

0:04:09.360 --> 0:04:12.320
<v Speaker 1>exact opposite. So that trade, that relative trade, we think

0:04:12.360 --> 0:04:15.520
<v Speaker 1>has kind of gone fully. So I would advocate sort

0:04:15.520 --> 0:04:17.760
<v Speaker 1>of S and P five hundred over Europe now on

0:04:18.440 --> 0:04:19.720
<v Speaker 1>a rebound trade that direction.

0:04:19.960 --> 0:04:21.520
<v Speaker 2>Oh that's interesting, But then what about all the money

0:04:21.560 --> 0:04:23.359
<v Speaker 2>that Germany is spending, Like you think that that doesn't

0:04:23.360 --> 0:04:26.080
<v Speaker 2>hold enough water to really cycle through the market as much.

0:04:26.440 --> 0:04:28.520
<v Speaker 1>Well, Germany's up seventeen percent this year, so I think

0:04:28.520 --> 0:04:31.760
<v Speaker 1>you've discounted quite a bit of that. And once again,

0:04:32.080 --> 0:04:33.479
<v Speaker 1>you know, just in the very near term, this is

0:04:33.480 --> 0:04:36.880
<v Speaker 1>more tactically speaking that you know that the revision factors

0:04:36.880 --> 0:04:40.080
<v Speaker 1>for Europe should look weaker relative to the US, just

0:04:40.120 --> 0:04:44.159
<v Speaker 1>based on that currency factor that that Scarlett was asking about.

0:04:44.560 --> 0:04:46.680
<v Speaker 2>When you take a look at the NASAC and mag

0:04:46.760 --> 0:04:50.040
<v Speaker 2>seven say, in particular, is that sort of its own

0:04:50.080 --> 0:04:52.760
<v Speaker 2>beast in essence, because there was that euphoria and that

0:04:52.920 --> 0:04:54.960
<v Speaker 2>was you can make an argument and over evaluation. Is

0:04:54.960 --> 0:04:56.640
<v Speaker 2>that a little different from what the mess of the

0:04:56.680 --> 0:04:59.240
<v Speaker 2>market has to sort of manage right now with that headline.

0:04:58.880 --> 0:05:01.599
<v Speaker 1>Risk, Well, we're seeing to bring up Max seven because

0:05:01.640 --> 0:05:05.120
<v Speaker 1>that too is a situation where the earnings revisions have

0:05:05.279 --> 0:05:08.040
<v Speaker 1>rolled over harder than the rest of the market, and

0:05:08.040 --> 0:05:11.080
<v Speaker 1>that's why that group is underperformed. But we're starting to

0:05:11.160 --> 0:05:13.200
<v Speaker 1>notice now in our data we look at this daily

0:05:13.520 --> 0:05:15.800
<v Speaker 1>that that's flattening out now and that may actually pick up.

0:05:15.800 --> 0:05:18.000
<v Speaker 1>And remember, the Max seven will benefit from that weeker

0:05:18.080 --> 0:05:21.400
<v Speaker 1>dollar feature, So I think that there may be a

0:05:21.440 --> 0:05:24.400
<v Speaker 1>trade there as well to maybe kind of buy back

0:05:24.400 --> 0:05:26.800
<v Speaker 1>into the MAG seven relative to the four ninety three

0:05:27.279 --> 0:05:29.120
<v Speaker 1>or kind of the equal weight where you know, we've

0:05:29.120 --> 0:05:32.000
<v Speaker 1>seen pretty significant underperformance over the last couple of.

0:05:31.920 --> 0:05:36.000
<v Speaker 3>Months, so we have this rally recovery rally, but it's

0:05:36.040 --> 0:05:39.200
<v Speaker 3>not a durable rally as you've seen that suggests that

0:05:39.240 --> 0:05:43.839
<v Speaker 3>there's more downside ahead. Do you anticipate next time around

0:05:43.839 --> 0:05:46.000
<v Speaker 3>that there's going to be more force selling. I don't

0:05:46.000 --> 0:05:47.920
<v Speaker 3>get the sense that we got that this last time

0:05:47.960 --> 0:05:50.360
<v Speaker 3>and so as a result, we didn't really reach capitulation.

0:05:50.960 --> 0:05:52.560
<v Speaker 1>Well I don't know about that. I mean, we got

0:05:52.640 --> 0:05:55.320
<v Speaker 1>as over sold as we saw during twenty twenty two,

0:05:55.320 --> 0:05:57.120
<v Speaker 1>and we did see some force selling from some of

0:05:57.120 --> 0:06:00.000
<v Speaker 1>the systematic strategies and some of the more levered players

0:06:00.080 --> 0:06:02.080
<v Speaker 1>out there. For sure, we definitely didn't see force selling

0:06:02.080 --> 0:06:04.360
<v Speaker 1>in the retail community. But we may not see that.

0:06:04.400 --> 0:06:06.480
<v Speaker 1>You know, the retail community, you know, has made a

0:06:06.520 --> 0:06:08.359
<v Speaker 1>lot of money the last few years, and they have

0:06:08.400 --> 0:06:10.560
<v Speaker 1>a lot of cash on the sidelines, so maybe they're

0:06:10.560 --> 0:06:12.680
<v Speaker 1>in better shape. They don't, they don't get to that position.

0:06:12.960 --> 0:06:16.280
<v Speaker 1>What we're looking for, quite frankly, is not so much technical. Uh,

0:06:16.560 --> 0:06:18.720
<v Speaker 1>it's more on the on the revision side. We need

0:06:18.720 --> 0:06:21.080
<v Speaker 1>to see Earning's revisions stabilize and then start to turn

0:06:21.200 --> 0:06:23.640
<v Speaker 1>up again for this to become a rally that can

0:06:23.760 --> 0:06:25.720
<v Speaker 1>lead to new highs. When I say it's not a

0:06:25.800 --> 0:06:27.640
<v Speaker 1>durable rally, it doesn't mean we have to go lower.

0:06:27.640 --> 0:06:29.400
<v Speaker 1>It just means we're going to chop around, yes, and

0:06:29.440 --> 0:06:31.800
<v Speaker 1>that's a difficult environment. It's a trading environment, and it's

0:06:31.800 --> 0:06:33.960
<v Speaker 1>fine if you're a trader, but as an investor, you

0:06:33.960 --> 0:06:36.240
<v Speaker 1>know it's going to be noisy, and so don't you know,

0:06:36.440 --> 0:06:39.200
<v Speaker 1>you don't need to be rash here thinking you're missing something.

0:06:39.680 --> 0:06:41.880
<v Speaker 1>Either way, it is a trading environment. The ball is

0:06:41.920 --> 0:06:43.840
<v Speaker 1>going to stay high, as we said, and we think

0:06:43.839 --> 0:06:46.000
<v Speaker 1>it will work its way through over the next two quarters,

0:06:46.000 --> 0:06:47.400
<v Speaker 1>and by the second half of the year we should

0:06:47.400 --> 0:06:50.080
<v Speaker 1>see better visibility on twenty six grows getting better.

0:06:50.240 --> 0:06:52.120
<v Speaker 3>So like, which sectors would you want to be in

0:06:52.279 --> 0:06:55.279
<v Speaker 3>as sectors that may give guidance that you know moves

0:06:55.279 --> 0:06:56.200
<v Speaker 3>to the upside.

0:06:56.480 --> 0:06:58.360
<v Speaker 1>So I think you know, we've been very focused on

0:06:58.400 --> 0:07:03.160
<v Speaker 1>four sectors where the revisions have been good, as financial, software, media, entertainment,

0:07:03.440 --> 0:07:05.840
<v Speaker 1>and some of the consumer services sectors. Some of those

0:07:05.839 --> 0:07:07.520
<v Speaker 1>are starting to flatten out a little bit. And then

0:07:07.560 --> 0:07:10.880
<v Speaker 1>we've seen relative strength now lately in the defensive sectors,

0:07:11.520 --> 0:07:14.200
<v Speaker 1>most notably utilities and some of the staples areas not

0:07:14.320 --> 0:07:16.880
<v Speaker 1>on revisions but on price. So I think the Barbelle

0:07:17.000 --> 0:07:19.239
<v Speaker 1>sort of between those four sectors I mentioned where revisions

0:07:19.240 --> 0:07:21.280
<v Speaker 1>are good and a little bit of defensiveness in the

0:07:21.320 --> 0:07:24.720
<v Speaker 1>portfolio still makes sense probably going into the second quarter.

0:07:24.920 --> 0:07:26.960
<v Speaker 3>All right, really a pleasure to have you on, Mike.

0:07:27.480 --> 0:07:29.280
<v Speaker 3>Thank you so much for joining us today. Mike Wilson

0:07:29.600 --> 0:07:32.560
<v Speaker 3>over at Morgan Stanley talking about this tradable rally, A

0:07:32.640 --> 0:07:35.120
<v Speaker 3>choppy rally here around the fifty five hundred level,