00:00:02 · S3, S1, Mike Wilson
[00:00:02] S3: Bloomberg Audio Studios, podcasts, radio, news. [00:00:07] S1: Mike Wilson with us right now with Morgan Stanley here. It's clearing events we're looking for in the research. No, I know you don't write the research. I'm going to blame this on Nicholas Lentini or maybe even Michelle Weaver. Buried in your note, you have the dreaded word corrections. Okay, that's like a correction. Except I look at SPX, I look at NASDAQ, and they're not in correction. Is the new correction just flatlining since the summer? [00:00:33] S0: Well, it's a fair question. But I mean, you know, Tom, beneath the surface always tells a little bit of a different story. So earlier this year, it was a broadening story. That was our call for 2026, and it happened. And it was an earnings story that drove that. And then that paused in June, which we identified as this mid-cycle transition. It became very narrow. And that's what we've been dealing with. So there's been an incredible correction under the surface that started in June for the right reasons. And I think we're probably 80, 90 percent done with that. [00:00:59] S1: Do you buy the beleaguered corrected or do you stay on board the juggernaut?
00:00:59 · S1, Mike Wilson, S2
[00:00:59] S1: Do you buy the beleaguered corrected or do you stay on board the juggernaut? [00:01:05] S0: Well, I think you stay on board with the leaders for now, which is quality. And it's not just the MAG-7, it's quality as a factor. And that's been our call since June. Now, ironically, these corrections tend to end with the quality index down. finally getting hit. So in other words, the S and P 500, what we've been talking about for the last two months is typically these corrections. And when the S and P catches down to the breath or the breath catches up, and we've seen a meeting in the middle of those two metrics that we follow. And we think it's sort of, you know, we're in the ninth inning of this and this, and we have these clearing events, which you wrote about this week, that should kind of bring a final ending to this chapter. And then we can move forward with the bull market into 2027. [00:01:43] S2: One of the clearing events, you highlighted the midterm elections a week from today. Um, I guess the experts are telling us the Democrats are going to get some, maybe win the House, maybe even the Senate. What does that mean for, I guess it's just deadlock and gridlock and all that kind of stuff.
00:01:43 · S2, Mike Wilson
[00:01:43] S2: One of the clearing events, you highlighted the midterm elections a week from today. Um, I guess the experts are telling us the Democrats are going to get some, maybe win the House, maybe even the Senate. What does that mean for, I guess it's just deadlock and gridlock and all that kind of stuff. [00:02:00] S0: What does that mean for markets? Not much. I mean, to your point, the markets tend to pre-trade this just like any event, right? So part of the reason why the markets have been unstable or weaker the last month or so is there is a lot of nervousness around this election. Not so much who wins or the magnitude of the win, but just all the anxiety around the tension. All the language is being thrown around. The president talking about he's going to do something dramatic after the election. So the uncertainty around that. So to me, it's the uncertainty factor. And most of that has been priced now, too. And so sometimes these elections are clearing events simply because the event has come and gone. And then we realize that nothing has really changed. Going forward, is legislation really going to be dramatically different in the midterm? No, that usually happens in the presidential election when you have a real wholesale change in leadership. [00:02:46] S2: Boy, yesterday, I mean, all we talked about was, you know, AI because we had the Anthropic S1. [00:02:52] S0: We had the.
00:02:52 · Mike Wilson, S2, S1
[00:02:52] S0: We had the. [00:02:53] S2: Meta $ 90 billion follow-on offering announcement. We didn't even talk about the fact that the Fed's meeting. And, I mean, we're going to have a Fed meeting tomorrow. I mean, should we be paying attention to that? [00:03:03] S0: Well, sure. But I think the reason why is because the expectation is there's nothing going to be done at this Fed meeting. That was done last meeting, and now they're kind of on hold. That's the presumption. I think that's right. I mean, I'm not saying that that's wrong. But it's going to be more about the tonal interpretation of the press conference and all the Fed watchers scribbling afterwards. But at the end of the day, if I look at the last three or four Fed meetings, this is probably the one where the least amount of change is sort of expected. [00:03:32] S1: Mike Wilson with us. He's Chief Investment Officer driving all of equity at Morgan Stanley this morning. Whitney Tilson darkened the door on Friday on Bloomberg Money. And he framed this out, and it was perfect for Mike Wilson. I own the Mag 7. I got lucky. I've made a lot of money. I've never owned them. Massive regret right now. Or that group that bought them then sold them. And you've been so good about being patient. Discuss Mike Wilson's buy and hold. The blind holding is a phrase associated. Discuss buy and hold as a trap or is that a positive construct?
00:03:32 · S1, Mike Wilson
[00:03:32] S1: Mike Wilson with us. He's Chief Investment Officer driving all of equity at Morgan Stanley this morning. Whitney Tilson darkened the door on Friday on Bloomberg Money. And he framed this out, and it was perfect for Mike Wilson. I own the Mag 7. I got lucky. I've made a lot of money. I've never owned them. Massive regret right now. Or that group that bought them then sold them. And you've been so good about being patient. Discuss Mike Wilson's buy and hold. The blind holding is a phrase associated. Discuss buy and hold as a trap or is that a positive construct? [00:04:10] S0: Well, generally, stocks over time go up. And the S & P 500, of course, is a great index. It's a high-quality index that is self-regulating, right? You have names go in and out. Now, what we've had in the last 10 or 15 years has been pretty unusual. You have basically monopoly businesses. That's what these are. [00:04:26] S1: Thank you. [00:04:26] S0: At least monopsony, which is a whole different discussion. [00:04:29] S1: 100%.
00:04:29 · S1, Mike Wilson, S2
[00:04:29] S1: 100%. [00:04:30] S0: And they're in different lines. I mean, you have one that's feeding the hyperscalers. The hyperscalers are then feeding the other ones. So It's kind of a circular thing, but it's all being funded mostly by equity and cash flow for the most part. Yeah, they've been borrowing more money lately, but the markets have adjusted for that. I like to remind people when they say, oh, my God, the stock market's up 10% this year. It's like stock investors are idiots. They have no idea what's going on. Can't they see all this stuff that's happening? The multiple for the S & P 500 has gone down almost 20% from a year ago. So don't tell me that the market isn't paying attention. [00:05:01] S2: It is. [00:05:02] S0: The question is, is that enough of a discount? Yeah, I think the multiple now is cheap enough to basically feel comfortable that it's discounted a lot of these risks. And when you have these monopoly-type businesses really driving the bulk of that, it's hard to argue that this trend of earnings growth doesn't sustain. [00:05:17] S2: Yep. Earnings growth, you just mentioned, I mean, the first half of this year was just extraordinary in terms of the earnings growth numbers. Third quarter coming in, I think, pretty strong as well. But if nothing else, the comps next year are going to be tough. How does a market deal with a 20%, 30% growth rate down to a mid-teens, which we would kill for at any other time?