Morgan Stanley's Mike Wilson on Stocks, Earnings, Fed, Bond Markets, Banking Sector

Mike I see a massive polarity in the equity markets right now it's a select group of halves in everybody else dragging along looking for the next narrative am I right on that polarity yeah that's right Tom I mean you know you guys were talking about the bond markets volatility here recently we've been focused on that too we think that you know the bond market is sort of jumping ahead of what the FED is saying and that's the first time we've really seen that in quite a while meaning that the bond market is somewhat you know dismissing that that's that plot which I find interesting because I think the equity Market may start to do that too and it's already happening under the surface as you alluded to meaning small cap stocks and anything that sort of views lower quality or hat will have challenging but it needs Capital availability is is being punished and then we're left with you know 20 stocks kind of carrying today I mean the 20 stocks carrying the day screams the roll up I've been talking about for six seven eight months with the interest rate regime that you studied at Michigan a few years back with that said is it a return to what you and I knew years ago or is this a new higher interest rate regime for the stock market well I think it's a little bit of both I think what what it really is is it's just a much less predictable world and this has been our theme for the last couple of years is that we're entering a period of higher economic volatility right the last 20 years has been a world of repression where you know all of these metrics were somewhat predictable and that's you know that's for companies that's for the FED itself that's for investors and now we're entering a world where it's just not as predictable and that means higher risk premiums whether we're talking about credit whether we're talking about term premium in the bond market or we're talking about Equity risk premium in our view you know I think people are operating as if we're going to go back to that predictable world and that's I think misplaced a lot of people have been reading your prognostications of lower earning multiples for week after week after week the latest uh from you given the events of the past few weeks we think guidance is looking more and more unrealistic and Equity markets are at greater risk of pricing in much lower estimates ahead of any hard data changes my given that you've been saying this for a while and given the fact that the we have continued to see resilience in equities that refuse to go down how do you push back and say you guys are going to wake up it might not be yet even if we get disappointing earnings but you will well look we try to navigate that inside the equity market right so I mean last year we we saw a pretty big degradation in multiples but as we pointed out again today all that was due to higher interest rates none of it was due to higher risk premium which is the part of the multiple that is you know pricing in what growth is going to be now I would push back on the pushback which is that the market is starting to revalue or devalue what I would say the companies that are most uh at risk of missing estimates as I mentioned earlier you know lower Quality Companies a more cyclical companies smaller cab companies are going to have a hard time with you know what's going on the regional banking system so it is happening it's just you know it takes a little bit longer and everybody you know kind of focuses on the S P 500 or maybe NASDAQ 100 as these kind of you know bastions of safety and that's true until it's not well okay so let's talk about the repricing last year we were talking about big Tech and this year the repricing has been in the opposite direction I'm looking right now meta Facebook shares up more than 71 percent so far year to date Apple shares up more than 20 percent I mean basically pick your pick your poison and it's up dramatically how do you push back against this against the recovery it's for the names that supposedly we're going to come under pressure at a higher rate world well I think you said it right I mean these companies took their punishment last year because they were you know probably the tip of the spear in terms of you know evaluations out of bounds when when rates went up they they took it first and you could argue that a lot of those uh groups or you know stocks and sectors that they're in are in a recession already right they're that's the area we are seeing layoffs that's the area we are seeing retrenchment on costs and and I think the I think the debate now Lisa is have those companies cut costs and gotten in front of it enough where they can now see earnings growth again I think there's some appetite for that view uh that's not our view our view is that there's going to probably be more costs coming in that space because the male investment was just so egregious and the over earning was even worse so I think it's just going to be kind of a drip drip drip um you know my suspicion is you know markets tend to figure this out ahead of the actual numbers coming down and because the bond market just repriced itself overnight we think that risk for death Equity Market is elevated now more than a span for the last six or 12 months Mike you've been labeled a bear and I know what it is to be labeled to bear and then people think that everything you say is bearish no matter what I'm just saying even when potentially you do get constructive are there any areas that you think have sufficiently repriced where you're starting to see opportunity well look I mean financials have started to reprice in a meaningful way you know now all these companies are going to have problems uh you know that we're seeing in some of these so yeah I think it's happening I mean another thing I would just point out is that you know financials tend to lead uh the overall Market but that's one area for sure um some of the retail and some of the consumer areas have repriced they've been repricing for years you know we just added a name to our refresh running by list today it's a retailer so you know I think these there are definitely areas and markets go through these periods which I call it a rolling bear Market rolling reception we've kind of I think uh came out with that view a few years ago now people have used it but you know that's the way it works and and yeah we're looking for opportunities now at the stock level but at the index level it just does not look attracted to us Mike Wilson the thing that's different this time around is a pile of money in what's called private equity private markets can they be a catalyst for a trip not like milking years ago but can they be a catalyst for a roll-up of all these troubled companies well look I mean first of all I don't think there's that many you know troubled companies I think we have a situation where valuations are out of bounds and we need to correct that um I absolutely think there's tons of cash out there where there's private or public money you know public money meaning asset owners it can come in at the right price and it will so whatever we're going to get here in the next three to six months in terms of finally resetting the valuation appropriately getting estimates down I don't think we're going to stay at very very low price levels for very long time we're not in the camp that we're in a secular structural bear Market it's a cyclical bear Market has some some completion to it and your your question is really around is there enough cash and investable funds out there to kind of you know stabilize things and I think the answer is absolutely yes

Channel: Bloomberg Television

Views: 184,569

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Id: dMIPhqRd2AQ

Length: 6min 53sec (413 seconds)

Published: Mon Mar 27 2023