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.
