Podcast Summary: Thoughts on the Market

Episode: Stocks in 2026: What’s Next for Retail Investors
Date: December 8, 2025
Hosts: Mike Wilson (Morgan Stanley CIO and Chief U.S. Equity Strategist), Dan Skelly (Senior Investment Strategist, Morgan Stanley Wealth Management)

Episode Overview

In this timely episode, Mike Wilson and Dan Skelly discuss Morgan Stanley's bullish outlook for U.S. stocks in 2026, focusing on what matters most for retail investors. They address anticipated volatility, significant risks such as inflation, strategies for diversification, and the evolving investment landscape influenced by AI and sectoral shifts. Listeners get actionable insights into portfolio construction, sector opportunities, and responses to the most common investor anxieties heading into the new economic cycle.

Key Discussion Points & Insights

1. Market Outlook for 2026 & Volatility

[00:25 - 01:13]

• Bullish View with Caveats:
  • Both hosts affirm their positive outlook for stocks in 2026 while underlining the reality of increased volatility.
  • Mike Wilson: “Our view coming into this year, still pretty bullish for 2026... the risk for retail is that it’s going to be volatile. So point to point, we’re still bullish.” [00:25]
• Inflation is highlighted as a persistent risk for both retail and institutional investors.

2. Major Retail Investor Risks and Hedging Strategies

[01:13 - 02:31]

• Inflation as a Key Risk:
  • Persevering in sectors like services, housing, and potentially wage inflation.
  • Dan Skelly: “There are ways to definitely hedge against that in an equity portfolio. We think, for instance, owning parts of the AI infrastructure cohort… are necessary hedge[s] against inflation risk.” [01:39]
• Portfolio Diversification:
  • Overconcentration (notably the “Mag 7” tech stocks) remains a pitfall; AI’s reach is broader than investors realize, cutting across many sectors.
  • Natural diversification is emphasized—beyond just tech leaders.

3. Market Concentration, AI, and Broader Opportunities

[02:31 - 03:17]

• MAG7 Dominance & Inflation:
  • Wilson posits that if inflation reaccelerates, the opportunity set beyond the top tech stocks expands.
  • Mike Wilson: “Part of our view for next year is that we think the market’s going to broaden out.” [02:58]
• Stock Picking in a Broader Market:
  • Skelly outlines factors that could lead to market broadening: Fed rate cuts, deregulation, increased M&A—benefiting mid/small caps.

4. Sector and Thematic Insights

[03:17 - 10:12]

Financials

• Drivers: Economic reacceleration, Fed cuts, deregulation, capital markets recovery.
• Subsector Dynamics:
  • Opportunities in regional banks over alternative managers, with potential for “catch up trades” in regionals.
• Dan Skelly: “Despite all these different bullish factors... I don’t think I’ve even seen a real strong consistent overweight. So I think number one, that’s an opportunity.” [05:27]

Healthcare

• Catalysts: Dissipation of policy risks, positive earnings revisions across pharmaceuticals and medical technology, strong potential for M&A.
• AI Integration:
  • Major future tailwind as AI adoption spreads within healthcare, leading to new efficiencies and entrants.
• Dan Skelly: “We think AI is going to be a vector that cuts across the healthcare industry in a really positive way.” [07:23]

Consumer Sector

• 'K-shaped' Economy:
  • High-end platforms are winning market share, resembling a “winner-take-all” environment much like the big tech leaders.
  • Resilient Domestic Platforms: U.S.-focused consumer platforms show stronger performance than global brands, partly due to weaker traction in China and evolving branding dynamics via AI.
• Dan Skelly: “We continue to like the big box consumer platforms across clothing and food, housing across E-commerce.” [09:57]

Industrials & Infrastructure

• AI Infrastructure and Beyond:
  • Infrastructure and capex remain strong due to AI-driven spending, Fed cuts, and fiscal policy (like the “big beautiful bill”).
  • U.S. manufacturing reshoring and dormant industrial stocks are highlighted as areas ripe for revival.
• Dan Skelly: “The US is winning manufacturing production share… and we think that has implications… for stocks and stock picking within what we would call shorter cycle themes.” [10:55]

5. Responding to Investor Concerns on Valuations and Timing

[11:37 - 13:16]

• Fears of Missing Out/High Valuations:
  • Wilson and Skelly push back against the narrative that “it’s too late” to invest.
  • Market composition is higher quality, less leveraged, and AI-driven, meriting a premium.
  • Dan Skelly: “The earnings and the economic potential unleash not just from AI, but some of these fiscal and monetary policies could create tremendous margin and earnings potential over the long run.” [12:54]

Notable Quotes & Memorable Moments

• On Inflation and Volatility:
  • Mike Wilson: “I think the risk for retail is that it’s going to be volatile.” [00:41]
• On Natural Diversification:
  • Dan Skelly: “We like the idea of embedding natural diversification into the equity portfolio.” [02:09]
• On AI’s Market Impact:
  • Dan Skelly: “AI almost feels like this huge inflationary ramp at first to get to that deflationary nirvana down the road with productivity.” [03:52]
• On Health Care’s AI Angle:
  • Dan Skelly: “We think AI is going to be a vector that cuts across the healthcare industry in a really positive way.” [07:23]
• On Missing the Rally:
  • Dan Skelly: “The market today looks totally different than it did in the past and AI is no doubt one big part of that.” [12:13]
  • “We’re looking at a level of multiples that appears artificially high and based on what could be a big earnings inflection point… could frankly just be superficially high.” [13:06]

Timestamps for Key Segments

• Bullish Outlook & Key Risks: [00:25 - 02:31]
• Market Breadth, Fed, and AI Themes: [02:31 - 04:38]
• Sector Deep Dives - Financials, Healthcare: [04:38 - 08:15]
• Consumer Sector Themes: [08:15 - 10:12]
• Industrials, AI Infrastructure, Capex: [10:12 - 11:37]
• Addressing Valuation & Timing Fears: [11:37 - 13:16]

Takeaways for Retail Investors

• Maintain a bullish stance for 2026 but prepare for volatility and inflation risk.
• Diversify beyond tech leaders—look at infrastructure, financials, healthcare, and select consumer platforms.
• Don’t fear “missing out.” Market composition and future earnings potential, especially from AI and fiscal policy, make a case for sustained long-term growth and support current valuations.
• Focus on companies with pricing power, adaptability to AI, and strong cash flows across sectors.

For listeners: This episode provides a strategic roadmap for retail investors heading into 2026, championing a diversified approach, sector awareness, and bullish patience as markets evolve in the new economic cycle.