Morgan Stanley’s Mike Wilson sees market transition from “rolling recession” to “recovery”

[Analyzing Digital Data - Copy Space - Statistics, Financial Chart, Economy]
DKosig

Morgan Stanley’s chief investment officer and U.S. equity strategist Mike Wilson believes the market has transitioned from a “rolling recession” to a “rolling recovery,” signaling optimistic prospects for investors.

In an interview with CNBC, Wilson emphasized that the private economy has been weak for the past two to three years, but recent economic indicators suggest a shift toward growth.

“The recession itself ended with the DOGE layoffs,” Wilson said. “The stock market figured this out. The stock market is smarter than all of us, and the confirmation for us is that the earnings revisions now have [gone] higher in a way they only do in a new economic cycle.”

Wilson recommends a barbell investment strategy focusing on both cyclical sectors and defensive high-quality names. “We have liked a lot of the tech sector (XLK [https://seekingalpha.com/symbol/XLK]). We have like financials (XLF [https://seekingalpha.com/symbol/XLF]), we have like industrials (XLI [https://seekingalpha.com/symbol/XLI]),” he said, while also noting that “health care (XLV [https://seekingalpha.com/symbol/XLV]) looks quite interesting” on the defensive side.

His strategy anticipates that the Federal Reserve will implement more meaningful interest rate cuts as labor data confirms market weaknesses.

Despite his long-term optimism, Wilson acknowledges potential short-term market challenges. “This is probably the first time since April that I think we have maybe a tradable correction,” he cautioned, citing U.S.-China trade tensions and funding market stress as potential catalysts for a market pullback of up to 10%.

Wilson maintains that inflation isn’t necessarily harmful for stocks, as it can drive earnings growth. “Inflation is not bad for stocks… It’s just different,” he said, adding that a lack of inflation might actually be more concerning for market performance.

His overall outlook suggests continued market expansion and broadening in 2026, which he believes “looks a lot like '21 in that regard.”

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