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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 we're still in a new bull market, even if a correction is likely in the near term. It's Monday, October 20th at 1pm in New York, so let's get after it. I continue to believe the sharp sell off in April following Liberation Day marked the trough of what was effectively a three year rolling recession in the US economy. We've written extensively about this view, but it still remains very much out of consensus. Since 2022, most sectors of the private economy have gone through their own individual recession, but at different times. The final trough in the rate of change in economic activity came in April around the tariff announcements, which came as a surprise to almost everyone, at least in terms of the magnitude and scope. In short, Liberation Day was really capitulation day on the last piece of bad news for the economic cycle, which then bottomed. Stocks seem to agree, which is why they've rallied in a straight line since then, much like they do after the trough of any economic cycle. The other proof we have for this claim is that the V shaped recovery in earnings revision breadth, something we've discussed for many months in our written research and on this podcast. Based on our numerous conversations with investors, this view remains very unpopular. Instead, most believe the economy and earnings growth for next year are at risk of being lower rather than higher than expected, as I do. Core to my view is that we're now firmly in an inflationary regime since COVID and the implementation of helicopter money. To get us out of that crisis, the government has to run it hot to get us out of the massive debt and deficit problem created over the past 20 years. The end result is that investors need to expect hotter but shorter cycles rather than the elongated 10 year cycles we experienced between 1980 and 2020 when inflation was falling. That means two year up cycles followed by one year down cycles for US equity markets, which is exactly what's happened since 2020. We are now in the midst of a new up cycle that began in April. The key thing to understand during this new regime is that inflation is not bad for stocks so long as it's accelerating and the Fed is on the sidelines or easing. Like in 2020-21, 2023 and now. Today, higher inflation means higher earnings growth, which is why price earnings multiples are high. Today, with inflation likely to accelerate next year, stocks are anticipating better earnings growth. In other words, stocks are a hedge against inflation in fact, relative to gold, high quality stocks may offer a cheaper inflation hedge at this point, given their dramatic underperformance to precious metals year to date and since 2021. Eventually inflation will be a problem again for stocks, like in 2022 when the Fed has to react by tightening policy. But that's a story for another day. Having said all this, the equity markets are a bit frothy at the moment and and so a 10 to 15% correction in the S&P 500 is not only possible, but would be normal at this stage of a new bull market. I see three primary reasons for why we could get that in the near term. First, China US trade relations have recently escalated again and we are slowly marching toward a Nov. 1 deadline for tariffs on China to go back to Liberation Day levels. While most investors don't want to get sucked into selling at the worst possible time like they did in April, this risk is real and will weigh on stocks if we don't see evidence of a de escalation in the next few weeks. Second, funding markets have exhibited some signs of increased stress lately. This is likely due to the ongoing quantitative tightening program by the Fed which is draining bank reserves. Should these stresses increase, it could spill over into equities. Third, our earnings revision breadth metric is rolling over now after its historic rise since April. This could continue into earnings season as it's normal to see some retracement from such a high level and tariffs start to flow through from inventories to the income statement. Trade tensions might also weigh on company guidance in the short term. Bottom line I believe a new bull market began in April with a new rolling economic and earnings recovery that is now quite nascent. However, even new bull markets have corrections along the way and certain conditions argue we are at risk for the first tradable one since April. Keep your powder dry in the near term for what should be a great buying opportunity if it arrives. Thanks for tuning in. I hope you found it informative and useful and 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.