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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 why equity investors sometimes need to look away from the headlines. It's Monday, April 13th at 11:30am in New York, so let's get after it. Today I want to talk about something I think a lot of investors are struggling with right now, and that's timing. When I talk to people, markets still feel fragile. To most there's uncertainty around geopolitics, central banks, oil, you name it. But when I look at what the market is actually doing, not what it feels like, but what it's telling us, I come away with a very different conclusion. The market is further along than most people think in this correction. In fact, over the past couple of weeks, we've seen the S&P 500 bounce meaningfully almost 7% from the lows after holding that critical 6300 to 6500 range that we've been focused on. To me, that's not random. That's the market carving out a low ahead of an all clear signal and stepping back. My broader view hasn't changed. I still think we're in a new bull market that began last April, coming out of that rolling recession between 2022 and 2025. This correction is part of that cycle, not the end of it. And importantly, a lot of the heavy lifting has already been done. Valuations have compressed significantly. Forward price earnings multiples have fallen about 18% from top to bottom and beneath the surface, more than half the stocks are down 20% or more. That's a market that's already discounted a lot of risk, whether it's the war, private credit concerns or AI disruption. At the same time, earnings are moving in the opposite direction. Trailing earnings growth is running around 15% and forward earnings growth is up over 20%. That combination of falling multiples and rising earnings is a classic bull market correction behavior, not a bear market. And that's why I think many are misreading this environment. One area where I think that's especially clear is energy. If you look at the price action, energy stocks appear to have already peaked. In relative terms, that's often a signal that the underlying commodity has in this case, oil may have already peaked as well, or at least it's stabilizing. Which brings me to what I think is really driving volatility now, interest rates. We're back in a regime where stocks and yields are negatively correlated. That means higher rates are a headwind for EQUITIES again. And the recent hawkish tone from central banks that's focused on inflation is creating tighter financial conditions. In my view, that's the final hurdle. Not the war, not oil, but monetary policy. And here's the interesting part. Tightening financial conditions are also what ultimately force central banks to pivot. So the very thing creating anxiety today may be what sets up relief tomorrow. Now, if we're in the later stages of this correction, the next question is positioning. For me, it's still about a barbell. On one side, I like cyclicals like financials, industrials and consumer discretionary stocks, where the earnings remain strong and valuations have reset. On the other side is quality growth, in particular the hyperscalers, where sentiment has been washed out but fundamentals remain intact. That combination has worked well at the lows so far, and I think it continues to make sense here. When I zoom out even further, there's a bigger theme developing as well, and that's the rebalancing of the economy, a core theme we discussed in our 2026 outlook back in November. We're starting to see hard evidence that growth is shifting from the public to the private economy. Private payrolls are strengthening, capital investment is picking up, and companies are behaving as if the current uncertainty is temporary, not structural. This is the rolling recovery on track. At the same time, AI is acting more as a margin tailwind than a disruption, at least in the near term, and this supports operating leverage across many industries. All of that reinforces my view that the recovery is real and still has room to run. So when I put it all together, here's where I land the market has already discounted a lot of bad news. It's adjusted valuations, reset positioning, and absorbed market risks. What risk remains is policy and how long Rates and liquidity stay restrictive. But markets don't wait for clarity on that. They move ahead of it. So here's my advice. Take advantage of any further worries and put capital to work before it's obvious, because the market waits for no one. Thanks for tuning in. I hope you found it informative and useful. Let us know what you think by leaving us a review, and if you find thoughts on the market worthwhile, tell a friend or colleague to try it out.
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