Executive Summary
Morgan Stanley's Chief US Equity Strategist identifies a 'rolling recovery' that began with 'Liberation Day' in April 2025, arguing the three-year rolling recession has ended while markets remain positioned for continued weakness. Wilson contends that sluggish ISM manufacturing data and labor market softness are actually constructive for equities, keeping the Fed dovish while fundamental improvements compound beneath the surface. The thesis centers on converging tailwinds: deregulation, accommodative monetary policy, supportive fiscal policy ahead of midterms, and energy prices near five-year lows providing consumer relief. Critically, positioning in cyclical trades remains light despite improving fundamentals—a classic early-cycle setup. Wilson sees the second half of 2025 as the bottoming process for macro indicators, with 2026 as the re-acceleration year. The 45-month ISM manufacturing cycle points to delayed but not canceled recovery. Financial deregulation benefits are still underappreciated, while housing could unlock velocity as builders prioritize volume over margins. Key risks include liquidity stress (though Fed has responded with early QT termination) and potential AI CapEx slowdown. The Venezuela intervention adds geopolitical complexity but reinforces US hemispheric influence. This represents a variant view that traditional cycle indicators are lagging rather than leading, creating opportunity in economically sensitive sectors.
Key Insights
what Mike Wilson said“One reason investors have been hesitant is the sluggishness of traditional business cycle indicators, particularly the ISM manufacturing purchasing managers index. There's been a reluctance to press technical trades until those gauges clearly re-accelerate”
what Mike Wilson said“Gasoline prices in particular are sitting near five-year lows, which is providing real economic relief for lower and middle income consumers. That cushion matters, especially as other parts of the economy firm”
what Mike Wilson said“The good news is that the Fed is responded by ending quantitative tightening early and restarting asset purchases through the Reserve Management Program. This effectively adds liquidity to a system that was showing signs of stress”
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