Morgan Stanley Chief US Equity Strategist Mike Wilson says investors are rotating out of some of the year's biggest winning ...
What Michael Wilson said
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Michael Wilson, Morgan Stanley's Chief U.S. Equity Strategist, said the Fed is on hold, not hiking or cutting, as the new chair gives less guidance, leading to higher bond market volatility that will settle over time. He argued rates will be lower at the back end, supported by a new Fed-Treasury accord to anchor long-term debt financing. Wilson said the market has already adjusted to this regime, as seen in precious metals peaking when the Fed nominee was announced. He reiterated his broadening trade call, noting small caps rose over 20% on the Russell since mid-May as oil prices fell. Wilson predicted semiconductor stocks will correct 30% to 40% in a bull market, with earnings revision breadth at 75% and peaking, while hyperscalers stabilize. He expects this rotation to last four to eight weeks, with the S&P 500 still ending the year above 8,000. He also said banks will do well by year-end as loan growth accelerates, despite removing regionals from his favorites list this week.
Key takeaways
Semiconductor stocks will correct 30% to 40% in a bull market, with some already correcting, as earnings revision breadth peaks at 75%.
The Fed is on hold, not hiking or cutting, with rates ultimately lower at the back end due to a new Fed-Treasury accord.
The broadening trade has reignited since mid-May, with small caps up over 20% on the Russell and equal-weight S&P 500 performing well.
S&P 500 year-end target remains above 8,000, with the earnings story intact and operating leverage underappreciated.
0:00Let's just start with the stability we're seeing in the rates market and how important that is to set the stage for what you're anticipating in the next few months?
1:31Do you think in the meantime, we're confusing a reduction in guidance with an increase in hawkishness?
1:57Does that open the door to the broadening trade again?
We begin this hour with stocks adding to gains to kick off the first full week of the third quarter. Mike Wilson of Morgan Stanley writes that falling energy prices, peaking tariff inflation, and contained services keep the Fed on hold rather than hiking this year. Lower real rates should support equities and further fuel the broadening trade. I'm pleased to say that Mike joins us around the table for the next hour. He joins us for more. Mike, good morning. Good to see you. Let's just start with the stability we're seeing in the rates market and how important that is to set the stage for what you're anticipating in the next few months?
Yeah, I think you were saying it earlier. I was listening to the show. There's somebody expecting a hike, someone expecting a cut, and we're on hold. This is what we gotta get used to: with the new chair probably not giving as much guidance, he's gonna allow the market to figure it out on its own and have these differing views. We're in that adjustment period now. I think that's one of the reasons why the market's been a little choppy or even correcting in the last month or so: we're getting used to this new regime, which is gonna be higher volatility in the bond market. But over time, what's gonna end up happening is the market's gonna settle down. It's actually more estimates or wider dispersion of estimates that leads to lower volatility in pricing over time, but we're in that adjustment period. So we think rates are lower ultimately, particularly at the back end. And by the way, we've talked about this on the show many times: new treasury secretary, new Fed chair, this new Fed Treasury accord to really anchor the back end. That's what they're focused on. You gotta get the back end down or at least anchored because you have so much debt to finance.
Yeah, I think that's right. The market's pricing that now. So the good news is that we've already had that adjustment, and it started four months ago. This is why precious metals have traded really poorly. The day that was announced as a nominee, the gold market peaked, and that was a sign the dollar has been stronger. So once again, the market has really gotten ahead of this.
So rates have reset. We've come down from around 4.2% to 4.1. There's a belief this morning at least we've removed the urgency to hike as soon as July, we can put that story to bed. Crude declined massive reset from triple digits down to the sixties on WTI. Does that open the door within the equity market? And let's talk about the stock market exclusively. Does that open the door to the broadening trade again?
Yeah, that's our call, basically. That was happening at the beginning of the year, then we had Venezuela and then Iran. By the way, the market priced Iran before the invasion even happened, or the attacks happened because once again, it was pretty well signaled. So that's when the broadening trade stopped. It literally stopped the day that the attacks happened, and we had the big spike in oil and then the pricing of the Fed to hike rates. Since mid-May, when we reiterated the broadening call, we had a different view than most. We thought oil prices would come down, and that has allowed Fed pricing to stabilize and the broadening trade to reignite. Small caps have performed nicely, just had a massive quarter up by more than 20% on the Russell. We've seen the broadening trade in the performance of the equal weight S&P 500 as well.
Let's talk about the max seven, which increasingly was called the lag seven. You got a note out this morning talking about maybe the money going back into the hyperscalers. Just walk us through how you're thinking about what's happened in tech and that divergence between the big spending companies and the beneficiaries of all that spending, which really widened in the last few months.
Yeah, there's a symbiotic relationship between the spenders and the beneficiaries, and typically they trade in lockstep. A couple things we've been writing about for the last several months. Number one, CapEx to sales. That factor has been straight up since the big beautiful bill was passed. The government is incenting businesses to spend money today rather than later. That CapEx to sales factor has been driving a lot of stocks higher. It looks like it's peaking now. The hyperscaler stocks started to trade poorly about a month and a half ago into this idea. But that's not sustainable. You can't have the spender stocks trading poorly and the beneficiary stocks continuing to go straight up. Last week, Meta announced that perhaps they're gonna sell some excess capacity, maybe turn into a provider of capacity. That is a reason for these things to take a break. Also, peak rate of change on revision breadth. The memory stacks. Revisions have been spectacular, but they can only go so high. So all that's happening at the same time, and I expect the hyperscalers now to stabilize. That's what's going on in the last couple of weeks, and the semiconductor stocks are gonna correct. That's a good development. That doesn't mean the CapEx cycle is over, but that ebbing and flowing between the two is a natural governing factor because you can't have this divergence continue. It's unstable.
Your words 'take a break'. That's interesting. Some people have called it a narrative shift for the overall trade and maybe a shift in spending too. Why is it one and not the other?
Well, we don't know for sure, but we've had three of these already, John. Since ChatGPT was announced in November 2022, we've had three of these mini cycles within the broader structural CapEx cycle. The market starts to question whether the return on capital is good enough to support this kind of CapEx. Then the stocks trade poorly, and the CEOs come out and say maybe we won't spend as aggressively, and then it ebbs the other way. That's the dance back and forth. There will be a time when the CapEx cycle exhausts itself, and we will have malinvestment. But we don't think that spending cycle is over because they just started raising capital in the credit market. So they're gonna spend it. We can have these mini cycles within the structural bull market of CapEx.
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Wilson, M. (2026, July 6). Mike Wilson Sees Semiconductor Stocks Correcting [Interview transcript]. Bloomberg Television. CEOInterviews.AI. https://ceointerviews.ai/interview/1064877/
MLA
Michael Wilson. "Mike Wilson Sees Semiconductor Stocks Correcting." Bloomberg Television, 6 Jul. 2026. Transcript, CEOInterviews.AI, https://ceointerviews.ai/interview/1064877/.
BibTeX
@misc{wilson2026_1064877,
author = {Michael Wilson},
title = {Mike Wilson Sees Semiconductor Stocks Correcting},
howpublished = {Interview transcript, Bloomberg Television. CEOInterviews.AI},
year = {2026},
month = {jul},
url = {https://ceointerviews.ai/interview/1064877/},
note = {Speaker-attributed transcript with timestamps}
}
