Podcast Summary: Thoughts on the Market

Episode: More Confidence in a Bull Market
Host: Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist
Date: November 3, 2025

Episode Overview

This episode features Mike Wilson sharing his analysis of the latest macroeconomic developments and Q3 earnings, emphasizing their implications for market confidence and future equity leadership. The discussion centers on recent U.S.–China trade negotiations, outcomes from the October Federal Reserve meeting, and readings from ongoing earnings season, shaping Morgan Stanley's bullish outlook for 2026.

Key Discussion Points and Insights

1. Developments in U.S.–China Trade Relations (00:25)

• Key Event: U.S. agreed to cut tariffs on China by 10% and delay proposed tech export controls for one year.

• Chinese Response: Pause on rare earth export controls, resumption of soybean purchases, and a crackdown on fentanyl.

• Market Reaction: Positive vs. prior weeks’ escalation.

  "This is a major positive relative to how developments could have gone following the sharp escalation a few weeks ago, and markets have responded accordingly." – Mike Wilson (00:53)

2. The October Federal Reserve Meeting (01:01)

• Fed Stance: Policy "not on a preset course"; December rate cut probability drops from 92% to 68% post-meeting.

• Market Impact: Modest equity consolidation; very weak breadth.

• Outlook on Market Leadership:

  "If growth holds up but the Fed only cuts rates modestly, leadership is likely to remain narrow and up the quality curve over the next six to 12 months." – Mike Wilson (01:32)

  • Quality stocks expected to outperform; wait on small-cap, low-quality, cyclical rotation until clearer Fed action.

3. Quantitative Tightening and Market Liquidity (02:02)

• Fed to End QT in December: Reflects concerns over funding market stress.

• Mixed Expectations: Termination timing ranged from immediate to February; the Fed "splits the difference."

• Short-term Funding Watch: Increasing repo use and wider SOFR-Fed Funds spreads may signal trouble for speculative equities.

  "Specific overnight repo usage has been on the rise and if that continues... I believe equity markets are likely to trade poorly, especially in some of the more speculative areas." – Mike Wilson (02:48)

• Equity Strategy: Favor higher-quality stocks until funding stress resolves.

4. Third Quarter Earnings Results (03:06)

• Earnings Season Highlight: Revenue surprises are more than double the historical run rate.

• Rolling Recovery Thesis: Signs of “much better earnings growth than most are expecting.”

  "We think this could provide further support that our rolling recovery thesis is underway." – Mike Wilson (03:14)

5. Outlook for 2026 and Market Leadership (03:24)

• Bull Market Confidence: The new bull market began in April; expect higher, broader earnings growth in 2026.

• Leadership Rotation: True broadening to lower quality/small caps awaits a more dovish Fed.

• Fed Caution: Current policy "holds back" smaller and lower-quality stocks; economy needs lower rates to “fully blossom.”

• Investment Guidance: "Stay up the quality curve" until Fed shifts policy stance; funding stress may present year-end buying opportunities.

  "Stay up the quality curve until we get more clarity on the timing of a more dovish path by the Fed, and look for stress in funding markets as a possible buying opportunity into year end." – Mike Wilson (03:51)

Memorable Quotes & Notable Moments

• On Trade Progress:

  "This is a major positive relative to how developments could have gone following the sharp escalation a few weeks ago, and markets have responded accordingly." (00:53)

• On Market Leadership:

  "Leadership is likely to remain narrow and up the quality curve over the next six to 12 months." (01:32)

• On Funding Markets:

  "If...repo usage continues, along with the widening spreads between the secured overnight financing rate and Fed funds, I believe equity markets are likely to trade poorly, especially in some of the more speculative areas." (02:48)

• On the Bull Market View:

  "We're gaining more confidence in our core view that the new bull market began in April with the end of the rolling recession and the beginning of a new cycle." (03:24)

• On Strategy Moving Forward:

  "Stay up the quality curve until we get more clarity on the timing of a more dovish path by the Fed, and look for stress in funding markets as a possible buying opportunity into year end." (03:51)

Timestamps for Key Segments

• Opening & Theme Introduction: 00:00
• U.S.–China Trade Developments: 00:25–01:00
• Federal Reserve Policy and Market Response: 01:01–02:10
• Quantitative Tightening and Funding Markets: 02:11–03:05
• Earnings Surprises and Market Thesis: 03:06–03:23
• 2026 Outlook & Guidance for Investors: 03:24–03:55

Summary

Mike Wilson’s analysis underscores a cautiously optimistic stance for U.S. equities, highlighting significant progress in U.S.–China trade and a resilient earnings season. He advises a continued focus on high-quality stocks amid ongoing Fed caution but sees groundwork being laid for a broader bull market in the coming year, contingent upon more dovish policy and resolution in funding market stress.