Morgan Stanley’s Wilson gives strong S&P calls a rest

Morgan Stanley’s Wilson gives strong S&P calls a rest
Renowned investment strategist is ‘keeping an open mind’ as markets face a pivotal moment.
APR 23, 2024

With questions swirling around the US economy and corporate earnings, Morgan Stanley’s Mike Wilson is avoiding the kinds of big market calls he became known for the past couple years to focus instead on finding opportunities beneath the surface.

“You just gotta keep a really flexible, open mind — that’s what we try to do now with the stock picking,” the firm’s chief US equity strategist said Tuesday in an interview on Bloomberg Surveillance. “We haven’t really talked much about the index in the last four or five months because we’re trying to focus on the relative-value trades.”

Wilson’s remarks come at a pivotal moment for traders. The prospect of Federal Reserve policy remaining tight for months to come has investors worried that growth will eventually fade. And the picture from Corporate America has been mixed: On Tuesday, JetBlue Airways Corp. flagged pockets of consumer weakness, while General Motors Co.’s results suggested demand was strong. Meanwhile, some of the so-called Magnificent Seven stocks that powered the market last year have faltered.

Wilson said the bar is high for US firms to deliver on earnings, particularly for megacap technology names, which face tough comparisons from the growth they showed last year. But more interesting to him will be how shares react to the results.

“The theme is that it’s a very unbalanced economy and that’s the theme we’ve had for a while, so post-Covid, it’s just been a very unpredictable environment for a lot of reasons,” Wilson said. “Some of those things we got really wrong. And I think we’re trying to figure out kinda what the next stage is.”

Wilson has softened his tune since last year, when his calls for a stock-market slide failed to materialize as the S&P 500 Index surged 24%. He became one of the most-followed voices on Wall Street in 2022 for correctly predicting a rout in US equities few others saw coming.

“I mean, it’s a humbling business,” Wilson told Surveillance.

The issue, he said, is that the market overpriced the consensus hard-landing view a year ago. Now, the bet is for a no-landing scenario again, an environment Wilson said he isn’t confident can last. He reiterated his view that the market is in a late-cycle environment due to a tight labor market, a yield curve that remains inverted and with margins at record-high levels.

“I would argue everybody’s been wrong about the fundamental picture in many, many ways over the last two years, including ourselves,” Wilson said. “There seems to be this perceived certainty again being priced in. I’m not certain at all — maybe I’m the dummy in the room.”

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