Summary4 min read

Thoughts on the Market: "A New Bull Market Begins?"

Host: Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist
Date: September 8, 2025

Episode Overview

In this episode, Mike Wilson examines the implications of the latest U.S. nonfarm payroll report and evaluates what it signals about the equity markets. Wilson contextualizes the data within his ongoing thesis of a “rolling recession” and suggests that investors may be witnessing the early days of a new bull market. He emphasizes the importance of looking past headline economic metrics to better understand the true health of the market and anticipates shifts in policy responses, like Federal Reserve rate cuts, and their potential impacts on market growth.

Key Discussion Points & Insights

1. Labor Market Data: Limitations & Interpretations

Backward-Looking and Revisions:
- Wilson stresses that "the labor market data is perhaps the most backward looking of all the economic series" (00:19), and is highly susceptible to significant revisions, making it unreliable in real-time.
- Historical revisions tend to be "pro cyclical," amplifying downturns and recoveries.
Current Payroll Report Interpretation:
- The most recent payroll report "supports our view the labor market is weak. However, this is old news to the equity market as we've been discussing for months." (00:10)
- Recent revisions were "better than last month's by a wide margin, suggesting the labor market bottomed in the second quarter." (01:05)

2. The Rolling Recession & the New Cycle

Rolling Recession Thesis:
- Wilson reiterates his belief that "a rolling recession began in 2022 and finally bottomed in April" (01:18), with different sectors entering recessionary phases at different times, thus avoiding typical recessionary spikes in economic metrics.
Economic Distortions:
- Significant factors, like "the historically significant rise in immigration post COVID 19 and subsequent enforcement this year," have distorted labor market measures. (02:10)
Transition to Recovery:
- The weak labor report "provides further evidence of our thesis that we are now transitioning from a rolling recession to a rolling recovery" (02:23).

3. Fed Policy, Market Dynamics & Investor Strategy

Rate Cuts and Bull Market Outlook:
- "We're entering a new cycle environment and the Fed cutting interest rates will be key to the next leg of the new bull market that began in April." (02:37)
- Acknowledges that the Fed might remain inflation-focused, potentially slowing the pace of rate cuts.
Market Underlying Weakness:
- "The economy has been much weaker for many companies and consumers over the past three years than what the headline economic statistics like nominal GDP or employment suggest." (02:55)
- Suggests using earnings growth, breadth, and confidence surveys as better measures of economic health.
Investor Approach:
- Notes that "it would not surprise me if equity markets go through some consolidation or even a correction during this seasonally weak time of the year." (03:30)
- Advises: "Should that happen, we would be buyers of that dip and likely even consider moving down the quality curve in anticipation of a more dovish Fed." (03:42)

Notable Quotes & Memorable Moments

On Labor Market Data's Limitations:
"It's particularly prone to major revisions that tend to make the current data unreliable in real time, which is why the National Bureau of Economic Research typically declares a recession started at a time when most were unaware we were in one." (00:30)
On the April Recovery:
"Friday's revisions were better than last month's by a wide margin, suggesting the labor market bottomed in the second quarter." (01:05)
Defining True Economic Health:
"Perhaps the simplest way to determine if an economy is doing well or not is to ask: Is it delivering prosperity? Broadly on that score, we think the answer is no." (02:58)
Bull Market Outlook:
"A new bull market for equities began with a trough in the rolling recession that began in 2022. It's still early days for this new bull, which means dips should be bought." (04:03)

Timestamps for Important Segments

00:00–00:50: Critique of labor market report data and its backward-looking nature
01:05–01:30: Insights from recent payroll revisions and the bottoming labor market
01:40–02:25: Explanation of the rolling recession and its impact on traditional economic indicators
02:37–03:10: Transition from recession to recovery; Fed policy's prospective role
03:30–04:03: Market correction expectations and investment guidance

Summary Flow

Mike Wilson delivers a thorough analysis of both the latest payroll data and broader economic trends. He maintains Morgan Stanley’s ongoing standpoint that the recession has played out in a rolling, sector-specific fashion since 2022, rather than through a sharp, economy-wide downturn. With evidence mounting that economic conditions reached their nadir in April 2025, Wilson posits that the groundwork is laid for a new bull market in equities, where rate cuts by the Federal Reserve will be central. He continues to recommend a strategic, optimistic stance for investors—buying into market dips—while warning that headline statistics may distort the economy’s true vitality.

Bottom Line:
A new bull market appears underway, rooted in an April trough following a protracted, rolling recession. Investors are encouraged to view any dips in this early-stage recovery as buying opportunities, provided they account for lingering economic ambiguities and the slower-than-ideal policy response.

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Transcript2 lines

[00:01]
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Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley CIO and chief U.S. equity strategist. Today on the podcast I'll be discussing Friday's payroll report and what it means for equities. It's Monday, September 8th at 11:30am in New York, so let's get after it. The heavily anticipated non farm payroll report on Friday supports our view the labor market is weak. However, this is old news to the equity market as we've been discussing for months. First, the labor market data is perhaps the most backward looking of all the economic series. Second, it's particularly prone to major revisions that tend to make the current data unreliable in real time, which is why the National Bureau of Economic Research typically declares a recession started at a time when most were unaware we were in one. Furthermore, history suggests these revisions are pro cyclical, meaning they get more negative going into a recession and then more positive once the recovery has begun. It appears this time is no different. Indeed, Friday's revisions were better than last month's by a wide margin, suggesting the labor market bottomed in the second quarter. This insight adds support to our primary thesis on the economy and markets that I've been maintaining for the past several years. More specifically, I believe a rolling recession began in 2022 and finally bottomed in April with the tariff announcements made on after the initial phase of this rolling recession that was led by a payback in Covid pull forward demand in tech and consumer goods, other sectors of the economy went through their own individual recessions at different times. This is a key reason why we never saw the typical spike in the metrics used to define a traditional recession, although the revisions data is now revealing it more clearly. The historically significant rise in immigration post COVID 19 and subsequent enforcement this year have also led to further distortions in many of these labor market measures. While we have written about these topics extensively over the past several years, Friday's weak labor report provides further evidence of our thesis that we are now transitioning from a rolling recession to a rolling recovery. In short, we're entering a new cycle environment and the Fed cutting interest rates will be key to the next leg of the new bull market that began in April. Central to our view is the notion that the economy has been much weaker for many companies and consumers over the past three years than what the headline economic statistics like nominal GDP or employment suggest. We think a better way to measure the health of the economy is earnings growth and breadth, as well as consumer and corporate confidence surveys. Perhaps the simplest way to determine if an economy is doing well or not is to ask is it delivering prosperity? Broadly on that score, we think the answer is no. Given the fact that earnings growth has been negative for most companies over the past three years. The good news is that growth has finally entered positive territory the past two quarters. This coincides with the V shaped recovery in earnings revision breadth that we've been highlighting for months. We think this supports the notion that the worst of the rolling recession is behind us and likely troughed in April. As usual, equity markets got this right and bottomed then too. Now we think a proper rate cutting cycle is likely and necessary for the next leg of this new bull market. Given the risk that the Fed may still be focused on inflation more than the weakness in the lagging labor market data, rate cuts may materialize more slowly than what equity investors want. Combined with some signs that liquidity may be drying up a bit as both corporate and treasury issuance increases, it would not surprise me if equity markets go through some consolidation or even a correction during this seasonally weak time of the year. Should that happen, we would be buyers of that dip and likely even consider moving down the quality curve in anticipation of a more dovish Fed and coordinated action with the Treasury. Bottom line, A new bull market for equities began with a trough in the rolling recession that began in 2022. It's still early days for this new bull, which means dips should be bought. Thanks for tuning in. I hope you found it informative and useful. Let us know what you think by leaving us a review. If you find thoughts on the market worthwhile, tell a friend or colleague to try it out.
[04:21]
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