Episode summary
Riding the Final Innings of the Market Correction
Thoughts on the Market (Morgan Stanley)
· · 5 min · Hosts: Mike Wilson
Summary
Mike Wilson argues that the equity selloff is late-cycle rather than the start of a new bear market. He says the bull market that began last April is still intact, supported by accelerating earnings growth, a 18% decline in the S&P 500’s forward P/E, and a market that has already priced in a lot of bad news, from geopolitics to AI disruption.
He sees the recent damage as typical of a correction nearing its end: more than half of stocks are down at least 20% from highs, and many are down 30% to 40%. Wilson says the S&P 500 has held support in the 6,300 to 6,500 range, though he would like to see more de-risking in crowded trades such as semiconductors and memory stocks before a durable bottom is sealed.
For positioning, he favors a barbell of cyclicals and quality growth. On the cyclical side, he prefers financials, consumer discretionary, and industrials; on growth, he likes hyperscalers because they trade at roughly the same multiple as staples while offering more than three times the earnings growth. The main risk, in his view, is not war but rates: a 10-year Treasury above 4.5% could keep pressure on valuations until tighter financial conditions force a more dovish Fed response.
Key takeaways
- Wilson says the bull market that began last April remains intact because earnings growth is accelerating rather than rolling over.
- He believes the market has already discounted much of the bad news, helped by an 18% drop in the S&P 500’s forward P/E.
- He wants more de-risking in semiconductors and memory stocks before calling a durable bottom.
- Wilson prefers a barbell of cyclicals and quality growth, specifically financials, consumer discretionary, industrials, and hyperscalers.
- He sees 4.5% on the 10-year Treasury as a key threshold that could keep valuation pressure on stocks.
- His central risk case is higher rates and tighter financial conditions, not the Iran conflict or other geopolitical shocks.
Notable quotes
“I continue to believe we're in a bull market that began last April, coming out of what I've described as a rolling recession between 2022 and 2025”
“In fact, it's well advanced with the S&P 500's forward price earnings multiple declining by 18%”
“Resets of this scale usually occur near the end of corrections, not the beginning”
“For me, it's about balance and I think the right approach is a barbell of cyclicals and quality growth”
“The main risk to equities is still rates and central bank policy, not the war”
How the episode opens
Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley CIO and chief US equity strategist. Today on the podcast, I'll be discussing what investors should be doing as we enter the final innings of this equity market correction.
It's Monday, April 6th at 11:30 a.m. in New York. So, let's get after it.
For the past several months, my view has been very consistent. In short, I continue to believe we're in a bull market that began last April, coming out of what I've described as a rolling recession between 2022 and 2025. That recovery remains intact despite recent threats from AI disruption, private credit, and a new war in Iran.
While the war between Russia and Ukraine persists, markets have not been complacent with stocks correcting since last fall. In fact, it's well advanced with the S&P 500's forward price earnings multiple declining by 18%. A rare move outside of a recession or a Fed tightening cycle.
Neither of which is likely in my view. Meanwhile, earnings growth isn't rolling over. Instead, it's accelerating to multi-year highs.
And that's a key difference versus past periods when oil shocks led to a recession. And in the absence of that outcome, I see a market that's discounted a lot of bad news. Beneath the surface, the damage has been even more significant with over half of the stocks down at least 20% from their highs and many down 30 to 40%.
Resets of this scale usually occur near the end of corrections, not the beginning. The S&P 500 bounced last week off the 6,300 to 6,500 range of support that I've been highlighting. Could we retest those levels?
Sure, especially if rates push higher or geopolitical risks escalate further. However, I don't see a meaningful breakdown. If anything, what's still missing and what I'd actually like to see is a bit more de-risking in crowded trades like semiconductors and memory stocks in particular.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- equity market correction
- late-stage pullback risks
- investor positioning
- u.s. equity strategy
- bull market risk recovery
Watch the episode
Watch “Riding the Final Innings of the Market Correction” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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