Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Daybreak. I'm Nathan Hager alongside Karen Moscow, getting you ready for the trading day ahead. Our guest this morning for that, Mike Wilson, chief US equity strategist at Morgan Stanley. Great to have you back on with us on daybreak this morning, Mike. And it looks like a lot of investors, particularly retail investors, took your advice to buy the dip after the Moodies down grade last Friday. Now, with futures moving a little bit lower this morning, I guess the question is now what for this market? Good morning, Good morning, Nathan.

Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Daybreak. I'm Nathan Hager alongside Karen Moscow, getting you ready for the trading day ahead. Our guest this morning for that, Mike Wilson, chief US equity strategist at Morgan Stanley. Great to have you back on with us on daybreak this morning, Mike. And it looks like a lot of investors, particularly retail investors, took your advice to buy the dip after the Moodies down grade last Friday. Now, with futures moving a little bit lower this morning, I guess the question is now what for this market? Good morning, Good morning, Nathan.

Yeah, Well, I mean part of the sort of buying the dip is a factor of the retail community who has been actively buying every dip really for the last two years. In fact, they bought right through you know, liberation week I would call it, you know, that whole kind of episode. They didn't really flinch. And there's also the systematic strategies, the CTA's and of course corporate buyers. So there's just there's just a lot of demand, uh that is just coming in and I don't see that really changing in the near term. It doesn't mean we're going straight up by the way they'll be, They'll be pulledbacks and whatnot. But I do think going back to the Moody's downgrade specifically, it was the third agency that has downgraded US debt, and it was really the first two that had a forced impact on you know, folks having to sell because of that downgrade. So we just felt like that was not going to be you know, a major reason for for stocks to sell off. Now. I do think the bond that bond yields about four and a half percent on US treasuries. I do think if that, if that persists and we go higher, that that could lead to some corrective activity.

Yeah, Well, I mean part of the sort of buying the dip is a factor of the retail community who has been actively buying every dip really for the last two years. In fact, they bought right through you know, liberation week I would call it, you know, that whole kind of episode. They didn't really flinch. And there's also the systematic strategies, the CTA's and of course corporate buyers. So there's just there's just a lot of demand, uh that is just coming in and I don't see that really changing in the near term. It doesn't mean we're going straight up by the way they'll be, They'll be pulledbacks and whatnot. But I do think going back to the Moody's downgrade specifically, it was the third agency that has downgraded US debt, and it was really the first two that had a forced impact on you know, folks having to sell because of that downgrade. So we just felt like that was not going to be you know, a major reason for for stocks to sell off. Now. I do think the bond that bond yields about four and a half percent on US treasuries. I do think if that, if that persists and we go higher, that that could lead to some corrective activity.

Okay, as as far as the Moody's downgrade goes, though, Mike, uh, does it feed into this narrative that we've seen play out in the market following the Liberation announcement that the US might be a shakier buy for foreign investors. What's your view on that.

Okay, as as far as the Moody's downgrade goes, though, Mike, uh, does it feed into this narrative that we've seen play out in the market following the Liberation announcement that the US might be a shakier buy for foreign investors. What's your view on that.

I do think there's some there's some truth to that, but I mean, I don't know if it's directly related to, you know, the downgrade of US debt. I think there's a lot of things going on that that suggests that foreign investors may want to pair back their US dollar asset investments. Number one, mean they just got too much of them. I mean, you know, over the last twenty years, they've acquired a lot of US assets, both treasuries and stocks, and we know that, you know, a lot of these indices are imbalanced because of that. So some of that, you know, rebalancing is a good idea. And I would just point out that a lot of that rebalancing has already happened just through price. Right A lot of the foreign stocks in US dollar terms did quite a bit better than the US stocks in the first quarter of the year. So as I like to say, you know, the rebalancing happened through the price channel. And now the question is are foreign investors comfortable more comfortable now where we are today? I mean, you know they own less. Is that enough? I think it's probably fine where they are. We focus on the fundamentals, Nathan, as you know, I mean earnings revision breath bottomed you know, about a month ago, both on an absolute and on a relative basis, meaning US stocks are showing better earnings revision breath now and ultimately, if that's going to continue, which we think it could. Some of that, by the way, is the weaker dollar helping. Then, you know, I would suggest that US stocks probably continue to do as good, if not better than foreign stocks.

I do think there's some there's some truth to that, but I mean, I don't know if it's directly related to, you know, the downgrade of US debt. I think there's a lot of things going on that that suggests that foreign investors may want to pair back their US dollar asset investments. Number one, mean they just got too much of them. I mean, you know, over the last twenty years, they've acquired a lot of US assets, both treasuries and stocks, and we know that, you know, a lot of these indices are imbalanced because of that. So some of that, you know, rebalancing is a good idea. And I would just point out that a lot of that rebalancing has already happened just through price. Right A lot of the foreign stocks in US dollar terms did quite a bit better than the US stocks in the first quarter of the year. So as I like to say, you know, the rebalancing happened through the price channel. And now the question is are foreign investors comfortable more comfortable now where we are today? I mean, you know they own less. Is that enough? I think it's probably fine where they are. We focus on the fundamentals, Nathan, as you know, I mean earnings revision breath bottomed you know, about a month ago, both on an absolute and on a relative basis, meaning US stocks are showing better earnings revision breath now and ultimately, if that's going to continue, which we think it could. Some of that, by the way, is the weaker dollar helping. Then, you know, I would suggest that US stocks probably continue to do as good, if not better than foreign stocks.

You mentioned the earnings breadth continuing. Of course, a lot of what's been driving the rally once again, even in the last few days, has been those magnificent seven names that have been driving things for so long, sticking to the fundamentals. How do you view those companies in terms of their fundamentals.

You mentioned the earnings breadth continuing. Of course, a lot of what's been driving the rally once again, even in the last few days, has been those magnificent seven names that have been driving things for so long, sticking to the fundamentals. How do you view those companies in terms of their fundamentals.

Well, that's just it. I mean, you know, the reason why those stocks have performed so well for the last ten years is really an ear story, and it's it's really undeniable. Now, some have shown better earnings and more consistent earnings than others, but as a group, it's you know, these are monopolistic type businesses, and so you know, they they they are earners, and and that's being shown again that the revision breath for that group in particular has turned up again once again. Some of that is a weaker dollar helping, But you know, they go through these cycles where they self correct and then the earnings power just you know, resumes, and I think you know that so in other words, this recent snapback by the Magnificent seven is driven by the fundamentals. This is not just passive flows going back in there. They are showing good relative or inch of vision breath.

Well, that's just it. I mean, you know, the reason why those stocks have performed so well for the last ten years is really an ear story, and it's it's really undeniable. Now, some have shown better earnings and more consistent earnings than others, but as a group, it's you know, these are monopolistic type businesses, and so you know, they they they are earners, and and that's being shown again that the revision breath for that group in particular has turned up again once again. Some of that is a weaker dollar helping, But you know, they go through these cycles where they self correct and then the earnings power just you know, resumes, and I think you know that so in other words, this recent snapback by the Magnificent seven is driven by the fundamentals. This is not just passive flows going back in there. They are showing good relative or inch of vision breath.

And in terms of the broader market, do you see that that fundamental story continuing even with some of this uncertainty around trade negotiations continuing.

And in terms of the broader market, do you see that that fundamental story continuing even with some of this uncertainty around trade negotiations continuing.

Well, we've had a big snapback, So I think, you know, we're the view that we're probably kind of back on track to our original forecast for this year, which was that the first half would be tough, and our original range was fifty five hundred and sixty one hundred. We're right smack dab in the middle of that again. But we do still think, you know, we're going to break out of that range in the second half. And this is all related to the sequencing of the policy. A few other things as well, AI camp Bax you know, decelerated in the first quarter, but all those things now sort of stabilized. And if you think about, you know, this administration, they came in doing all the sort of growth negative policy changes the start. You could say the president is acting like a new CEO. He's coming in and sort of kitchen sinking it. And then in the second half is when the more positive strategies or policies will start to flow through things like deregulation. We think they'll be success in passing this tax bill or budget reconciliation. And then of course we can get some of the animal spirits going to people we're excited about four or five months ago, and that should lead to better growth in twenty twenty six. And I want to come back again to AI camp backs. AI campbacks is probably detail, but it's not going negative. And what we're looking forward to now on AI is the productivity benefits that will probably start to come through next year. The market will start to figure that out in the second half of twenty twenty five.

Well, we've had a big snapback, So I think, you know, we're the view that we're probably kind of back on track to our original forecast for this year, which was that the first half would be tough, and our original range was fifty five hundred and sixty one hundred. We're right smack dab in the middle of that again. But we do still think, you know, we're going to break out of that range in the second half. And this is all related to the sequencing of the policy. A few other things as well, AI camp Bax you know, decelerated in the first quarter, but all those things now sort of stabilized. And if you think about, you know, this administration, they came in doing all the sort of growth negative policy changes the start. You could say the president is acting like a new CEO. He's coming in and sort of kitchen sinking it. And then in the second half is when the more positive strategies or policies will start to flow through things like deregulation. We think they'll be success in passing this tax bill or budget reconciliation. And then of course we can get some of the animal spirits going to people we're excited about four or five months ago, and that should lead to better growth in twenty twenty six. And I want to come back again to AI camp backs. AI campbacks is probably detail, but it's not going negative. And what we're looking forward to now on AI is the productivity benefits that will probably start to come through next year. The market will start to figure that out in the second half of twenty twenty five.

Only got about thirty seven seconds left, Mike. But does that positivity in the second half continue even with the FED on the sideline? So you keep hearing a lot of FED officials hinting that they may have to stay on the sidelines for a little longer.

Only got about thirty seven seconds left, Mike. But does that positivity in the second half continue even with the FED on the sideline? So you keep hearing a lot of FED officials hinting that they may have to stay on the sidelines for a little longer.

Well, glad you brought that up. I mean, you know, our economists probably are you have the least amount of cut price in of the major folks out there. You know, we have no cuts pricing for this year, but then they have seven cuts price in for next year. So it's coming, is the bottom line. And once again, even if there's no cuts in the second half of this year, the market will start to look forward to those cuts next year. So I think the FED is another example of where the rate of change is going to start to turn into a tailwind at some point in the next six months.

Well, glad you brought that up. I mean, you know, our economists probably are you have the least amount of cut price in of the major folks out there. You know, we have no cuts pricing for this year, but then they have seven cuts price in for next year. So it's coming, is the bottom line. And once again, even if there's no cuts in the second half of this year, the market will start to look forward to those cuts next year. So I think the FED is another example of where the rate of change is going to start to turn into a tailwind at some point in the next six months.