Episode summary
The Reasons for the Bull Market to Resume
Thoughts on the Market (Morgan Stanley)
· · 5 min · Hosts: Mike Wilson
Summary
Mike Wilson argues that the equity correction did not begin with the Iran conflict, but last fall when liquidity tightened and the Fed was slow to respond. He says that stress first hit speculative stocks and crypto, then eased when the Fed ended balance-sheet reduction and restarted asset purchases, but the broader market has still gone through a deep and prolonged reset.
He thinks the current selloff is not finished. Based on year-over-year comparisons and technical indicators, Wilson says the S&P 500 could fall as low as 6,300 by early April, and that the market may need another month of weakness before a more durable bottom forms. He also says the most crowded stocks could suffer double-digit declines before the final low appears next month.
Looking six months ahead, Wilson remains constructive. He expects the oil spike to settle, sees earnings growth broadening, and thinks U.S. equities should benefit from the country’s energy independence, capital-spending incentives, and individual tax cuts in the big beautiful bill. He warns that a stronger dollar could weigh on global liquidity, but says the setup still supports a bull market resuming later this year.
Key takeaways
- Mike Wilson says the correction began last fall with tighter liquidity, not in February, and that the market already reflects a lot of bad news.
- He thinks the S&P 500 could trade as low as 6,300 by early April before fundamentals reassert themselves.
- Wilson says the Iran-related oil spike is likely temporary and that the Straits of Hormuz bottleneck should eventually be resolved.
- He expects U.S. stocks to outperform Asia and Europe over six months because the U.S. is more energy-independent.
- Wilson warns that crowded stocks could fall double digits before the final low, but he expects a bull market to resume later this year.
Notable quotes
“While most believe the current equity market correction began in February, it's clear to me that it actually began last fall when liquidity began to tighten”
“The short answer is not yet, but get your shopping list ready”
“Based on this simple observation and other technical indicators, I think the S&P 500 could trade as low as 6,300 by early April before our favorable fundamental outlook can take hold again”
“Another reason to be optimistic six months out is the broadening in earnings growth”
“So, be ready to add risk in anticipation of the bull market resuming later this year”
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 the conflict in Iran and what it means for equities.
It's Monday, March 9th at 11:30 a.m. in New York. So, let's get after it.
While most believe the current equity market correction began in February, it's clear to me that it actually began last fall when liquidity began to tighten. In fact, back in September, I warned that the Fed was not doing enough with the balance sheet and financial conditions were likely to tighten and cause some stress in equities. Starting in October, that stress manifested as a sharp correction in the most speculative parts of the equity market and cryptocurrencies.
The Fed responded by ending its balance sheet reduction earlier than expected and restarting asset purchases, which led to a strong equity market performance in January. At this point, the correction has very well advanced in both time and price with many stocks down 30% or more. Meanwhile, dispersion has rarely been higher with the spread between winners and losers the highest we've seen in 20 plus years.
As usual, the markets got it right by anticipating many of the concerns that are now obvious to all. The questions for equity investors now are, what will the world look like in six months? And are prices cheap enough to start assuming a better future?
The short answer is not yet, but get your shopping list ready. In many ways, we find ourselves in a very similar position to last year. Recall that the major indices started to accelerate lower in late February and early March.
The concern at the time was centered around tariffs, but like today, equity markets had already been trading poorly for months on concerns that had nothing to do with tariffs.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- bull market
- u.s. equities outlook
- market technicals
- market fundamentals
- geopolitical concerns
Watch the episode
Watch “The Reasons for the Bull Market to Resume” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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