And if you want to worry, you can look at a bull market effort right now we're
seeing many houses just higher. At the Morgan Stanley shop, they are
not. Michael Wilson is CIO, chief U.S.
equity strategist at Morgan Stanley. And one of your themes.
Mike Wilson is there's a complete mis guess on the interstate game as
addressed by the Fed today and followed by your own Zentner Whaley there.
BlackRock says persistent inflation is not a core reason for your caution in
the equity market. No, it's actually not time.
In fact, our view is that inflation is going to come down.
And while that potentially is very good for bonds, it's not going to be it for
stocks, because that's where the earnings power has been coming from.
Right. This this is really our boom bust
thesis. The reason we were so bullish in 2020
and 2021 is because we expected inflation to drive a profits boom.
And now when inflation comes down, you're going to have a profits
recession. So that's really where we differentiate
it from an equity standpoint. You know, Alan is you know, is looking
for a pause today to she's not looking for any more hikes, really.
The rest of this year, but a very slow path in terms of cutting next year.
Look, are you looking at going forward in terms of client responses, how they
push back against the bearishness that you've been expressing?
Yeah, look, I mean, we're in a weird situation now because I feel like the
fundamental side, our earnings call has been spot on.
So a year ago, just to kind of remind listeners, you know, we were calling for
an earnings recession and we were somewhat dismissed.
But of course, now we're in one. And the only difference now is that
we're just saying it's going to persist. Whereas I think most people the pushback
is, no, that earnings recession is over and we're going to see a re acceleration
in growth in the second half of the year.
And that's what the consensus is forecasting.
So that's what the pushback is. So in other words, you're saying that
you got it right. If you strip out some of the big tech
names and that there was an earnings recession that played out in lower
valuations of some of these shares. And you're saying it's going to
continue? Not necessarily talking at the headline
level of the S&P as much as these particular stocks fighting against the
idea of a broadening out of the rally, is that correct?
Well, actually, the technology stocks had the biggest earnings recession.
I mean, you know, you look at the communications services and some of the
technology stocks they had, they were their earnings were down significantly
in the fourth quarter. That's why they sold off so sharply in
the fourth quarter. So they had an earnings recession last
year. And the presumption is, is that's over.
And now that's going to re accelerate. And that's where we disagree.
We think that including tech, not just tech.
But overall, the earnings recession is going to persist into the second half of
year. It's going to get worse before it
actually and improves next year. If we use that in our economy or at home
and moving down to 3 percent, there is a under 3 percent inflation.
David Rosenberg up in Toronto, clearly in that camp as well.
I'm thinking of the partial differential on the income statement to get to the
Wilson earnings call to get the thirty nine hundred or whatever.
And it speaks to me, it's all the revenue line and that is is the core of
your call with your security analysts that revenue growth will disappoint.
That's exactly right. So last year the earnings recession I
just referred to was all a cost issue, right.
These big tech companies overinvested, thinking the pandemic boom was going to
continue at the same pace. Of course, it did not.
And that was a problem for discretionary consumer discretionary, as well as some
of the financial companies, et cetera. Companies had overinvested.
Now, what we're going to see is a top line disappointment.
Okay. Maybe it's not a recession, but like
Alan Roehrkasse is 0 percent GDP growth. Effectively, that's going to feel like a
recession because you're pricing is going to evaporate and we're seeing that
now. Good.
So there's this big dichotomy between goods, inflation and services, inflation
and mean goods. Inflation is back to the 2 percent
level. In fact, it's probably in to go
deflationary for a lot of businesses. That's your revenue growth.
Disappointing. How do you allocate here?
Do you participate in the market or is cash very comfortable place to be?
Both. So you know, and we see that that's a
stretch. Oh, yeah.
One hand on the other hand. Right.
So I take my economists happened. Look, I mean, in all seriousness, I
mean, cash offers you a great risk adjusted return.
We're overweight. Cash NIKKEI is nothing wrong with that.
But we're still awfully invested in equities, too.
We're just underweight our normal allocation and we've been that way for
the last 18, 24 months. I think this is misunderstood, Lisa.
I think people look at will suddenly go get out of the market.
And this is hugely important. Every time he comes on, he says, I'm
fully invested. It's not a matter of just simply hiding
under a mattress. My question is, what happens if there is
a recession and nobody cares? What happens if there's an earnings
decline and people shrug it off and say, well, look to the future and there's
going to be this incredible American exceptionalism?
And where else you gonna put your money? Well, this is our story for 24 and 25.
This is why we're in a different difficult situation right now where we
see the near-term risk reward is lousy. But if we look out 24, 25 and this is
what people are getting excited about, the capital capital expenditure boom for
things like restoring green energy, traditional energy, you're retrofitting
buildings, et cetera. And now, of course, I.
So this is exciting. The problem is, is it's a cost first and
then it's a productivity benefit. What people are looking past and I mean,
this is sort of the frustration when people say that there's a divergence
between bond markets and stock markets. They say, well, the bond markets looking
at the now as doesn't look very good. Stock markets are looking to 24, 25.
What's to make them look at now? What's the catalyst to bring them down?
At a time when people can look past near-term pain and see what you're
seeing? Well, typically its price.
OK. So we we're very disciplined on price.
You know. You know, we always get kind of
categorized as the perma bear. But I remember, you know, calling the
low in October. We called the low in March of 20 20
because of price. You know, so we're very disciplined.
Most people are not disciplined because a female.
And that's just the nature of markets. Markets are momentum driven.
It feels better when they're going up. It feels better to buy things when
they're going up. And that's where we are now.
So the risk reward in the short term is lousy.
So I think it's gonna be price, Lisa, which will change people's minds.
Now, we could be wrong. Maybe we don't get a a fatter pitch that
we're hoping for, but we're also not worried is going to run away from us.
And we can buy the stock market kind of right here probably twelve month from
now. What's the market bet right now?
Because I see a lot of indicators that say people are comfortable with Mike
Wilson's calls, are really afraid of this bull market and they're cautious.
What is the bet that Morgan Stanley sees by the investment in public, by the
hedge funds, by long only by side institutions?
Well, I mean, I think our once again, our view is we're having I'm in a
position of luxury out with capital to work every day for monthly performance.
We have asset allocation, which is kind of measured on a longer term basis.
So I had the luxury of time REITs, our asset owner clients had that advantage.
And that's what we tried to take advantage of.
Folks who don't have the advantage of time have to kind of participate at the
worst possible moment. And that, by the way, also includes at
the lows. Right.
So the opportunity that was created in March to 2020 is because people were
being forced to divest and we were happy to pick up those shares at cheap prices.
What do you think is the most overpriced aspect of the S&P right now?
Well, I think it is. This is an interesting question, because
most people assume it's only 10 stocks. That's actually not true.
The median multiple for the S&P 500 today is the same as the market cap way
to multiple. It's close to 19 times 18 1/2, 19 times.
So it's a very broad overvaluation. Now we say the sectors that are cheap.
OK, the only ones that are appearing cheap now are energy and financials.
The question there, of course, is where what are the origin and do you know?
Because they're cyclical businesses focus on energy.
There you go. Twenty sector energy there is at the
place to be. Well, I think energy at the stock level,
there's there's definitely opportunities.
And in financials, too. Right.
So the regional banking crisis created opportunity, individual financial
services stocks. And I think that's what we're trying to
do now. We're trying to find these one off
opportunities as opposed to worried about the stock market overall.
Mike Wilson, thank you so much, with Morgan Stanley here with the call.
Thirty nine hundred is where you are. You wanna make some news here?
Thirty nine hundred here and. Yes, sir.
So they're going to let us know. We will change in the first hour.
I sent my wife, Stanley.