Morgan Stanley CIO Mike Wilson Talks Upcoming Fed Decision, Markets

SPEAKER_1 (0:02)

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Tom Keene (0:07)

Mike Wilson with us right now, with Morgan Stanley here. It's clearing events we're looking for in the research. No, I know you don't write the research. I'm going to blame this on Nicholas Lentini, or maybe even Michelle Weaver. Buried in your note, you have the dreaded word correction.

Okay, it's like a correction. Except I look at SPX, I look at NASDAQ, and they're not in correction. Is the new correction just flatlining since the summer?

Mike Wilson (0:33)

Well, it's a fair question, but I mean, you know, Tom, but beneath the surface always tells a little bit of a different story. So earlier this year, it was a broadening story. That was our call for 2026, and it happened, and it was an earnings story that drove that. And then that paused in June, which we identified as this mid-cycle transition, became very narrow, and that's what we've been dealing with. So there's been an incredible correction under the surface that started in June for the right reasons, and I think we're probably 80, 90% done with it.

Tom Keene (0:59)

Do you buy the Bleecker corrected, or do you stay on board the juggernaut?

Mike Wilson (1:05)

Well, I think you stay on board with the leaders for now, which is quality, and it's not just the MAG-7, it's quality as a factor, and that's been our call since June. Now, ironically, these corrections tend to end with the quality index finally getting hit. So in other words, the S&P 500, what we've been talking about for the last two months is typically these corrections end when the S&P catches down to the breath or the breath catches up. And we've seen a meeting in the middle of those two metrics that we follow, and we think it's sort of, we're in the ninth ending of this.

And we have these clearing events, which you wrote about this week, that should kind of bring a final ending to this chapter. And then we can move forward with the bull market into 2027

Paul Sweeney (1:43)

One of the clearing events you highlighted, the midterm elections a week from today, I guess the experts are telling us that Democrats are gonna get some, maybe win the House, maybe even the Senate. What does that mean for, I guess it's just deadlock and gridlock and all that kind of stuff? What does that mean for markets?

Mike Wilson (2:01)

Not much. I mean, to your point, the markets tend to pre-trade this, just like any event. So part of the reason why the markets have been unstable or weaker the last month or so is there is a lot of nervousness around this election. Not so much who wins or the magnitude of the win, but just all the anxiety around the tension, all the language that's being thrown around.

The president talking about going to do something dramatic after the election, so the uncertainty around that. So to me, it's the uncertainty factor. And most of that has been priced out too. And so sometimes these elections are clearing events simply because the event has come and gone. And then we realized that nothing has really changed. Going forward, is legislation really going to be dramatically different in the midterm? No, that usually happens in the presidential election when you have a real wholesale change in leadership.

Paul Sweeney (2:46)

Boy, yesterday, all we talked about was AI because we had the Anthropic S1, we had the Metta $90 billion follow on offering announcement.

We didn't even talk about the fact that the Fed's meeting. And we're going to have a Fed meeting tomorrow. I mean, should we be paying attention to that?

Mike Wilson (3:03)

Well, sure. But I think the reason why is because expectations is there's nothing going to be done at this Fed meeting. That was done last meeting and now they're kind of on hold. That's the presumption. I think that's right. I mean, I'm not saying that that's wrong.

But, you know, it's going to be more about the tonal interpretation of, you know, the conference, the press conference, and all the Fed watchers are scribbling afterwards. But at the end of the day, if I look at like the last three or four Fed meetings, this is probably the one where the least amount of change is sort of expected.

Tom Keene (3:32)

Mike Wilson with us. He's Chief Investment Officer, driving all of equity at Morgan Stanley this morning. Whitney Tilson darkened the door on Friday on Bloomberg Money. And he framed this out and it was perfect for Mike Wilson.

I owned the Mag-7. I got lucky. I made a lot of money.