AI Summary
5 min readThe S&P 500’s forward price-to-earnings multiple has already fallen 18%—a move that is rare outside a recession or a Federal Reserve tightening cycle, neither of which Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist, expects. That compression, he argues, means the current equity market correction is well advanced, and investors should be preparing for its final innings rather than bracing for a deeper downturn.
Wilson’s central thesis is that the bull market that began in April 2024 remains intact, despite recent shocks from AI disruption, private credit concerns, and a new conflict with Iran layered on top of the ongoing Russia-Ukraine war. The correction since last fall has been driven by multiple compression, not by collapsing earnings. In fact, earnings growth is accelerating to multi-year highs, which Wilson sees as a critical difference from past episodes when oil shocks triggered recessions. Without that recession outcome, he believes the market has already discounted a significant amount of bad news.
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What you'll learn
- 1 (00:00) **Episode Introduction** - Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist, sets up the topic: what investors should do in the final innings of the equity market correction.
- 2 (00:20) **Core Thesis: Bull Market Intact** - Wilson reiterates his consistent view that the bull market began in April 2024, emerging from a rolling recession between 2022 and 2025.
- 3 (00:49) **Correction is Well-Advanced** - The S&P 500's forward P/E multiple has declined by 18%, a rare move outside a recession or Fed tightening cycle, neither of which is likely.
- 4 (01:19) **Beneath the Surface: Significant Damage** - Over half of stocks are down at least 20% from highs, with many down 30-40%, a scale of reset usually seen near the end of corrections.
- 5 (01:50) **What's Still Missing: De-Risking in Crowded Trades** - Wilson would like to see more repositioning in crowded trades like semiconductors and memory stacks to seal a durable bottom.
- 6 (02:14) **Where to Be: A Barbell Strategy** - The recommended approach is a barbell of cyclicals and quality growth.
- 7 (02:42) **Evidence Supporting the Recovery View** - Last week's jobs report showed private payrolls increasing by 186,000, one of the largest rises in three years, supporting the view that the economy is in the early stages of recovery from the rolling recession.
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Show Notes
Our CIO and Chief U.S. Equity Strategist Mike Wilson talks about risks in this late stage of the equity market pullback, how investors should position and what could come next.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. 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 am 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 percent, 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 stocks down at least 20 percent from their highs, and many down 30-40 percent. Resets of this scale usually occur near the end of corrections, not the beginning.
The S&P 500 bounced last week off the 6300 to 6500 range of support that I have been highlighting. Could we re-test 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. That kind of repositioning reset is often required to seal a durable bottom.
So, if we are in the later innings, the next question is: where do you want to be? For me, it’s about balance and I think the right approach is a barbell of cyclicals, and quality growth.
On the cyclical side, I like Financials, Consumer Discretionary, and Industrials. These are the areas where earnings momentum remains strong and valuations have come down meaningfully. It’s also what was leading prior to the start of the Iran conflict and reflects our core view that we are still in the early stages of a recovery from the rolling rece
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