The Master Investor Podcast with Wilfred Frost
Episode: Mike Wilson – The Fed is NOT Independent, and That’s Good for Stocks
Date: November 12, 2025

Episode Overview

In this episode, host Wilfred Frost welcomes Mike Wilson, Chief U.S. Equity Strategist, CIO, and Chair of the Investment Committee at Morgan Stanley. Wilson shares candid insights from his decorated career in market strategy, offers in-depth views on the current economic regime, and lays out why he believes the Federal Reserve is not truly independent—and why that may actually benefit U.S. equities. The discussion covers the evolution of Wilson’s investment process, his notable market calls and misses, lessons learned, and a provocative take on inflation, policy, and market structure.

Key Discussion Points & Insights

1. Investment Process & Market Indicators

(02:26–06:06, 14:03–16:40)

• Art & Science: Wilson’s approach blends data-driven analysis and intuition.
• Key Metrics: He prioritizes “rate of change” on earnings growth (earnings revision breadth) and policy changes, especially in the last two decades as policy’s market impact has surged.
  • “The main item that I focus on is essentially the rate of change second derivative on growth for either earnings … That’s how stocks trade.” – Mike Wilson (02:44)
• Shift in Market Structure: The marginal price setter is no longer the informed institutional investor but passive flows and retail, making fundamentals less predictive and flows more influential:
  • “The fundamental portion of the price discovery has become less important… something I hate because it’s nothing you can analyze in a proactive way. It’s more reactive.” (05:17)

2. Track Record: Market Calls, Hits, and Misses

(07:02–12:37, 13:36–14:03)

• Pandemic Playbook: Wilson entered 2020 bearish but flipped bullish at the March lows, forecasting the Fed and government response (“helicopter money”) would be highly stimulative and inflationary.
• Late 2021 Bearish Turn: Correctly anticipated the Fed’s pivot to hawkish policy as inflation became concern.
• Misses in ‘23–‘24: Overstayed bearish thesis as he underestimated the liquidity boost from the BTFP, failed to anticipate the magnitude of the AI-driven rally, and recognized too late that the market would be led by a handful of mega-cap stocks.
  • “2023 was not a good year despite the fact that the average stock performed really poorly… Our earnings revision breadth indicator was terrible during 2023, except for those seven stocks.” (11:10)
• Learning & Adapting: Experience shapes process—recent misses improved his understanding of the dynamics between liquidity, policy, and secular themes like AI.

3. Evolving Framework, Key Lessons

(13:36–16:40)

• Adaptability: Markets and indicators evolve—investors must, too. Time horizon is a crucial edge for individuals.
  • “The main advantage you have is time. You don’t have to do anything if you’re willing to … say, I’m just going to wait for the market to come to me.” (15:29)
• Only Warren Buffett Stays Unchanged: Most professionals can’t underperform for years; individuals (with discipline) can.

4. Economic Outlook & The “Rolling” Recession

(17:14–23:12, 23:38–25:45)

• Contrarian View: Believes the U.S. has already experienced a “rolling recession” from 2022–2024, hitting different sectors at different times.
  • “We actually believe we were in a recession in those years for the private economy…” (17:28)
• Current Recovery: The breadth of earnings growth has recently turned sharply positive, supporting a broadening bull market.
  • “The Russell 3000 ... the median stock has been in a very deep long earnings recession … and that just flipped positive in the second quarter.” (23:54)
• AI CapEx & Capital Investment: AI drove a capex boom; now, broader capital spending is being incentivized by tariffs, bill incentives, and policy design.

5. Market Structure & the Path Forward

(25:45–29:00, 29:00–34:53)

• Inflationary Regime: 2020 marked the start of a long inflationary period. High nominal growth needed to manage the U.S. debt load will mean higher baseline inflation—potentially 3–4%.
  • “That was the beginning of a new inflationary regime ... these regimes tend to last 30 to 40 years.” (26:54)
• Stock Implications: High-quality/‘moat’ companies have led the market, but accelerating inflation and a broadening economy will benefit “average” stocks in coming years (especially 2026).
• Passive Flows & Valuation: Pushes back on Howard Marks’ concern about passive flows distorting valuations; believes inflation is the key context.

6. The Fed, Policy, and Market “Independence”

(31:34–34:53; opening/closing)

• Not Truly Independent: The Fed’s paramount responsibility is stabilizing government funding and debt, not just inflation or full employment. He compares the current environment to the 1940s and asserts ongoing coordination with Treasury.
  • “I don’t think the Fed is independent … They have to intervene when the government needs their help. And I think that’s going to continue.” (33:32)
• Policy Response: If yields rise and volatility spikes, the Fed and Treasury will deploy new tools/programs to suppress it.

7. US Equities Outlook

(34:53–36:17)

• Constructive Bull: S&P 500 target at 7,200, expects a broadening rally and positive earnings momentum for the average stock.
• Short-term Caution: Possible year-end liquidity wobble is a buying opportunity as it would push the Fed toward more easing.
  • “There may be a bit of a wobble in the short term and that would be a tremendous opportunity to add risk.” (35:32)

8. Investment Advice

(36:29–38:00)

• For Individuals: The most important thing is disciplined rebalancing—avoid letting portfolios become excessively lopsided.
  • “Rebalancing is the single most important thing that individual investors probably do not do right.” (36:39)
• For Sophisticated Investors: Leverage one’s time horizon advantage—don’t follow fads; be patient and conviction-driven.
• For Institutions: His role is to provoke and broaden client thinking rather than overhaul processes.

Notable Quotes & Memorable Moments

• “The main advantage you have is time. You don’t have to do anything if you’re willing to stand there and say, I’m just going to wait for the market to come to me …” – Mike Wilson (15:29)
• “2023 was not a good year … Our earnings revision breadth indicator was terrible ... except for those seven stocks. So we just got it wrong.” (11:10)
• “We actually believe we were in a recession in those years for the private economy … And those higher interest rates have remained too high, in my view, for many parts of the economy that are levered to interest rates.” (17:28)
• “I don’t think the Fed is independent, okay? That doesn’t mean that they’re not trying to do the right thing. The Fed is not independent because they have a overarching responsibility to help the government fund itself.” (33:32)
• “I’m telling the audience right now is that we are now into an inflationary regime. And you have to understand that that means kind of two years on and one year off. And now we’re into a new two year positive cycle where inflation’s accelerating again, the Fed is on hold, and even cutting rates and tolerating the higher inflation. And that’s a very good earnings story.” (29:51)
• “Rebalancing is the single most important thing that individual investors probably do not do right.” (36:39)

Timestamps for Key Segments

• Investment Process & Market Metrics: 02:26–06:06
• Recap of Key Calls & Lessons: 07:02–12:37
• Adapting Strategy, Lessons Learned: 13:36–16:40
• Rolling Recession & Recovery Thesis: 17:14–23:12
• AI CapEx and Investment Cycle: 20:43–23:12
• Market Structure, Breadth Broadening: 23:38–25:45
• Inflationary Regime & Stock Market Outlook: 25:45–31:00
• Fed “Independence” & Policy Dynamics: 31:34–34:53
• Year-End S&P 500 Target & Strategy: 34:53–36:17
• Overriding Investment Advice: 36:29–38:00

Takeaway for Listeners

Mike Wilson believes markets have entered a multidecade era of higher inflation, necessitating a fresh approach—one that considers the Fed’s true (non-independent) policy imperatives and the ongoing evolution of liquidity, capital investment, and passive flows. He argues the next leg of the bull market will see broader participation beyond the mega-caps, provided investors recognize the realities of policy and inflation. Above all, Wilson’s advice is to stay adaptable, to use time to one’s advantage, and to rebalance, rebalance, rebalance.