Thoughts on the Market — “Bull Market Keeps an Eye on the Fed”

Host: Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist
Date: November 24, 2025

Overview

In this episode, Mike Wilson discusses the Federal Reserve’s critical role in both the near-term and medium-term performance of U.S. equities. With markets processing recent Fed decisions and anticipate changes in monetary policy, Wilson analyzes the damage beneath the headline indices, outlines why he’s sticking to a bullish thesis, and provides specific sector insights for the year ahead.

Key Discussion Points and Insights

1. Fed vs. Market Tensions (00:10 – 00:55)

• Theme: Rising tensions between the Federal Reserve’s monetary policy and market expectations continue to drive volatility.
• October Fed Meeting Impact: The October 29 Fed meeting’s hawkish stance on delaying rate cuts weighed on risk assets, especially tech-heavy indices.
• Quote:

  “At the end of September we discussed the building tension between the Fed and markets... this had the potential to lead to a correction in the short term. This scenario is playing out.” — Mike Wilson, 00:17

2. The Correction’s Breadth and Damage Under the Surface (00:55 – 01:48)

• Surface vs. Underlying Pain:
  • The S&P 500's decline has been limited (~5%), but under the surface, many stocks suffered deeper losses.
  • "Two-thirds of the largest 1,000 stocks seeing more than a 10% drawdown and a quarter down more than 20%."
• Other Asset Classes:
  • Bitcoin (~30% drop) and gold felt the impact of tighter liquidity before major indices.
• High Quality Stocks:
  • High-quality S&P 500 and NASDAQ 100 components suffered more following the Fed’s messaging.

3. What Happens Next: Market Correction Nearing its End? (01:48 – 02:23)

• Key Insight: Weakness in “generals” (market leaders) tends to signal a bottoming process.
• Opportunity View:
  • Wilson sees this correction as a time to double down on his rolling recovery thesis, arguing the worst may be over for the weakest market areas.
• Quote:

  “We think the weakness under the hood is a sign that we’re closer to the end of this correction than the beginning for the weaker areas of the market.” — Mike Wilson, 02:09

4. Labor Market Data & the Case for Fed Rate Cuts (02:23 – 02:58)

• Private vs. Official Data: Private labor data indicate softness deserving rate cuts; official government numbers are lagging.
• Labor Market Inflection:
  • “The rate of change trough in the labor data occurred back in April. With the lows in the equity market, the official government labor data that the Fed is waiting for is lagging and will simply confirm what we and the markets already know.”
• Delayed Data:
  • October jobs data canceled; November data not expected until December 16.
  • Markets must “wrestle with the Fed that’s dragging its feet.”

5. Liquidity Outlook and Policy Changes (02:58 – 03:18)

• Treasury Movements:
  • Expectation of a “meaningful decline in the Treasury’s general account in the coming weeks as the government reopens”—boosting liquidity.
• Quantitative Tightening:
  • The end of Fed’s QT program should also help support risk assets.
• Signal to Watch:
  • Strongest evidence of improving liquidity: rallies in “low quality, profitless growth stocks.”

6. Investment Positioning and 2026 Outlook (03:18 – 03:51)

• Bullish 12-Month View: Wilson is confident in a positive outlook for the S&P 500 into 2026.
• Calls Out Consensus:
  • Morgan Stanley’s early-cycle outlook is “out of consensus” versus market’s late-cycle bias.
  • Forecast for S&P 500 earnings growth: 17% (vs consensus 14%).
• Sector Recommendations:
  • Upgrades to small/mid-cap stocks and consumer discretionary goods, using near-term market weakness as a chance to reposition portfolios.
• Quote:

  “Use near term weakness related to a Fed that is moving too slow for the market’s liking to reposition portfolios to sectors and stocks that have lagged... but will benefit the most from a more aggressive Fed action that we expect to come.” — Mike Wilson, 03:45

Notable Quotes and Memorable Moments

• Mike Wilson on Market Correction:

  “Historically, the generals tend to fall the most at the end of corrections.” (02:03)

• On Labor Market Data:

  “The official government labor data that the Fed is waiting for is lagging and will simply confirm what we and the markets already know.” (02:36)

• On Portfolio Strategy:

  “We would view this type of correction and reset on expectations as an opportunity to double down on our rolling recovery thesis, which remains out of consensus.” (02:14)

Important Timestamps

• 00:10 — Opening and overview of market-Fed tension
• 00:55 — Breadth of correction beneath major indices
• 01:48 — Hints of a market bottom and strategy implications
• 02:23 — Labor data divergence and implications for Fed action
• 02:58 — Anticipated liquidity improvements, key asset classes to watch
• 03:18 — Bullish 12-month view, positioning for the next cycle
• 03:51 — Closing remarks and strategy summary

Conclusion

Mike Wilson delivers a clear, bullish perspective despite ongoing volatility and central bank uncertainty, urging investors to look past headline corrections, focus on underlying trends, and use temporary weakness to reposition for the next phase of the cycle. His emphasis remains on the disconnect between market and Fed expectations, the significance of labor data inflection, and a tactical tilt toward sectors poised to benefit from eventual monetary easing.