Joining us right now with his insights on the data and the outlook for this year is the man that we teased right before the break. Mike Wilson is the chief investment officer and chief US equity strategist for Morgan Stanley.
So what's going to happen, crystal ball?
Well, crystal ball can be cloudy. It could be clear. I think it's pretty clear right now that it's more of the same. I think that what happened last year is now still playing through, which is that there's a lot of consternation around these policy changes that all was kitchen sink kind of in the first quarter. They flipped it really quickly and the market has really adopted that narrative now. The Fed seems to be in a good place. I think the big surprise, the change from say end of last year to current, is a net positive is that the Fed now is addressing these liquidity concerns that we've been talking about proactively. I wasn't sure they would do that, but they're now purchasing assets again to make sure the funding markets are stable. I think that wild card was there. I think that's been taken off the table now. So look, the earnings picture is crystal clear to us. We've been probably leading in that view in terms of where we think earnings can be this year. We think it broadens out. That's starting to play through some of the stocks already, and I think that's the year we're looking at.
Do the midterms matter at all, do you think, given that we're in a midterm year?
Well, I think they matter in the sense that we know the government's going to be supportive. So what that means is if we get corrections along the way, okay? Like if we don't have a 10% correction, that would be unusual at some point this year. Trying to predict the timing of that is weird. I'm not worried about that because I think ultimately it'll be bought for the reasons we talked about. Growth is good. Visibility on earnings is quite good. The Fed seems to be in a good place and we have policy support going into the midterms if something were to go haywire.
How do you think about the employment situation? We're in this sort of growthy period and yet we also have a growthy unemployment situation.
Yeah. Well, I would say it's neutral. I mean, employment is not growing rapidly, particularly in the private sector still. And this is where, as you know, we have a very differentiated view from last year, which is we think the labor market bottomed in April. We've done a lot of analysis around this. We still discuss this with clients and there's a lot of disagreement around this point, but the market is telling you very clearly that the rate of change on the employment market bottomed in April and that's a positive. Now, the thing about employment, you have to remember the data lags, so the data is going to remain weak probably into the first half of this year, but that's backward looking. But what that will do is it will allow the Fed to cut rates and to be more supportive on the balance. You decided, we decided off camera that if earnings per share or earnings, you said at least double digits and you said the surprise would be high double digits or high teens.
Okay, so you got that. Then we got to figure out the multiple. If the multiple were to just stay where it is or even contract a little, that just seems like you're almost baking in some type of advance for stock markets unless there's a shock of some sort.
That's right. So that's our base case is that double-digit or high teens growth. And now we got to figure out the shock though.
Well, we don't forget, let's talk about the other side. There's a risk that multiples expand. If the Fed is actually as generous as they're kind of alluding to potentially with a new chair, you could see the back half of next year see multiple expansion, right? It could be a repeat. That's where then I would get worried about valuation. I'm not worried about valuation here, but if multiples expanded and we had sort of a bubbly type atmosphere, that's an upside risk potentially in the second half of the year. Something to think about.
Problem we could deal with that problem. Yeah, I mean to the extent there's been a lot of hand wringing about AI and about whether we're in some kind of bubble or something cracks there, do you have any anxiety on that front?
Not now because we're in the process now of raising more capital in the debt markets. That process has just begun. Let's look back at the 90s as a good proxy for this, or even the fracking capital expenditures that ended with a credit problem. We just started raising credit. You can't be worried about that too early. And so what I'm looking for though, Andrew, which is critical, is you got to watch the credit markets. The credit markets will tell us early. For example, in the late 90s, credit topped in the fall of 98, a year and a half or almost two years before the tech bubble sort of burst. Now, could there be another reason why AI capex collapses? There's another shock. Maybe there's a new technology that comes out of China that suggests that this capex that we're doing is irrelevant. I don't see that currently, like another DeepSeek kind of fear. I'd be more worried about that than I would be about credit rolling over in a way that constrains the spending.
Okay. So if you could only own one thing for the year, what would you own?
Consumer goods. For the full year, I'd say I still think consumer goods is an area where there's a lot of pent-up demand. They've been through somewhat of a recession. That's an area that's going to get a big boost from the big beautiful bill from the tax cuts in the first half of this year and then of course rates coming down. The attack on affordability I think could be quite good for them.
Have the banks already made their run?
