Morgan Stanley's Mike Wilson: Could see multiple expansion in the back half of 2026

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>> At Affordabl TODAY.

>> WELCOME BACK TO SQUAWK BOX.

JOINING US RIGHT NOW WITH HIS INSIGHTS ON THE DATA AND THE OUTLOOK FOR THIS YEAR IS THE MAN THAT WE WE TEASED RIGHT BEFORE THE BREAK. MIKE WILSON

IS THE CHIEF INVESTMENT OFFICER.

DURING THE BREAK, CHIEF U.S.

EQUITY STRATEGIST FOR MORGAN STANLEY. SO WHAT'S GOING TO

STANLEY. SO WHAT'S GOING TO HAPPEN? CRYSTAL BALL.

HAPPEN? CRYSTAL BALL.

>> WELL THE CRYSTAL BALL YOU KNOW CAN BE CLOUDY. IT CAN BE CLEAR. I THINK IT'S PRETTY

CLEAR. I THINK IT'S PRETTY CLEAR RIGHT NOW THAT IT'S MORE OF THE SAME. I THINK WHAT HAPPENED LAST YEAR IS NOW STILL PLAYING THROUGH, WHICH IS THAT THERE'S A LOT OF CONSTERNATION AROUND THESE POLICY CHANGES.

THAT ALL WAS KITCHEN SINK KIND OF IN THE FIRST QUARTER. THEY

FLIPPED IT REALLY QUICKLY. AND

THE MARKET HAS REALLY ADOPTED THAT NARRATIVE. NOW THE FED

THAT NARRATIVE. NOW THE FED SEEMS TO BE IN A GOOD PLACE.

YOU KNOW THEY I THINK THE BIG SURPRISE, THE CHANGE FROM SAY END OF LAST YEAR TO CURRENT IS A NET POSITIVE IS THAT THE FED NOW IS ADDRESSING THESE LIQUIDITY CONCERNS THAT WE'VE BEEN TALKING ABOUT PROACTIVELY.

I WASN'T SURE THEY WOULD DO THAT, BUT THEY'RE NOW PURCHASING ASSETS AGAIN TO MAKE SURE THE FUNDING MARKETS ARE STABLE. AND I THINK THAT WILD

STABLE. AND I THINK THAT WILD CARD WAS WAS THERE. I THINK

THAT'S BEEN TAKEN OFF THE TABLE NOW. SO SO LOOK THE EARNINGS

NOW. SO SO LOOK THE EARNINGS PICTURE IS CRYSTAL CLEAR TO US.

WE'VE BEEN PROBABLY LEADING IN THAT VIEW IN TERMS OF WHERE WE THINK EARNINGS CAN BE THIS YEAR.

WE THINK IT BROADENS OUT.

THAT'S STARTING TO PLAY THROUGH SOME OF THE SOME OF THE STOCKS ALREADY. AND I THINK THAT'S THE

ALREADY. AND I THINK THAT'S THE YEAR WE'RE LOOKING AT.

>> DO THE MIDTERMS MATTER AT ALL. DO YOU THINK GIVEN THAT

ALL. DO YOU THINK GIVEN THAT WE'RE IN A MIDTERM YEAR.

>> WELL I THINK THEY MATTER IN THE SENSE THAT WE KNOW THE GOVERNMENT IS GOING TO BE SUPPORTIVE, SO THAT WHAT THAT MEANS IS IF WE GET WE'RE GOING TO GET CORRECTIONS ALONG THE WAY, OKAY. LIKE IF WE DON'T

WAY, OKAY. LIKE IF WE DON'T HAVE A 10% CORRECTION, IT WOULD BE UNUSUAL AT SOME POINT THIS YEAR. TRYING TO PREDICT THE

YEAR. TRYING TO PREDICT THE TIMING OF THAT IS WEIRD. I'M

NOT WORRIED ABOUT THAT BECAUSE I THINK ULTIMATELY IT'LL BE BOUGHT FOR THE REASONS WE TALKED ABOUT. GROWTH IS GOOD.

TALKED ABOUT. GROWTH IS GOOD.

VISIBILITY ON EARNINGS IS QUITE GOOD. THE FED SEEMS TO BE IN A

GOOD. THE FED SEEMS TO BE IN A GOOD PLACE, AND WE HAVE POLICY SUPPORT GOING INTO THE MIDTERMS. IF SOMETHING WERE TO GO HAYWIRE.

>> HOW DO YOU THINK ABOUT THE EMPLOYMENT SITUATION? WE'RE IN

EMPLOYMENT SITUATION? WE'RE IN THIS SORT OF GROWTH GROWTHY PERIOD. AND YET WE ALSO HAVE A

PERIOD. AND YET WE ALSO HAVE A GROWTHY UNEMPLOYMENT SITUATION.

>> YEAH. WELL I WOULD SAY IT'S NOT IT'S NEUTRAL. I WOULDN'T I MEAN I MEAN EMPLOYMENT IS NOT GROWING RAPIDLY, PARTICULARLY IN THE PRIVATE SECTOR STILL.

AND THIS IS WHERE, AS YOU KNOW, WE HAVE A VERY DIFFERENTIATED VIEW FROM LAST YEAR, WHICH IS WE THINK THE LABOR MARKET BOTTOMED IN APRIL, AND WE'VE DONE A LOT OF ANALYSIS AROUND THIS. YOU KNOW, WE STILL

THIS. YOU KNOW, WE STILL DISCUSS THIS WITH CLIENTS AND THERE'S THERE'S A LOT OF DISAGREEMENT AROUND THIS POINT.

BUT THE MARKET IS TELLING YOU VERY CLEARLY THAT THE RATE OF CHANGE ON THE EMPLOYMENT MARKET BOTTOMED IN APRIL. AND THAT'S A POSITIVE. NOW, THE THING ABOUT

POSITIVE. NOW, THE THING ABOUT EMPLOYMENT, YOU HAVE TO REMEMBER THE DATA LAGS. AND SO

THE DATA IS GOING TO REMAIN WEAK PROBABLY INTO THE FIRST HALF OF THIS YEAR. BUT THAT'S

BACKWARD LOOKING. BUT THAT WHAT THAT WILL DO IS IT WILL ALLOW THE FED TO CUT RATES AND TO BE MORE SUPPORTIVE ON THE BALANCE SHEET.

>> BUT YOU DECIDED WE DECIDED ON OFF CAMERA THAT IF EARNINGS PER SHARE OR EARNINGS, YOU SAID AT LEAST DOUBLE DIGITS AND YOU SAID THE THE SURPRISE WOULD BE HIGH DOUBLE DIGITS.

>> OR HIGH.

>> TEENS HIGH TEENS. OKAY. SO

YOU GOT THAT. THEN WE GOT TO FIGURE OUT THE MULTIPLE. IF THE

MULTIPLE WERE TO JUST STAY WHERE IT IS OR EVEN CONTRACT A LITTLE, THAT JUST SEEMS LIKE YOU'RE ALMOST BAKING IN SOME TYPE OF ADVANCE FOR STOCK MARKETS, UNLESS THERE'S A SHOCK OF SOME SORT.

>> THAT'S RIGHT. SO THAT'S OUR BASE CASE. IS THAT DOUBLE OR

BASE CASE. IS THAT DOUBLE OR HIGH TEENS GROWTH.

>> AND NOW WE'VE GOT TO FIGURE OUT THE SHOCK THOUGH.

>> WELL DON'T FORGET LET'S TALK ABOUT THE OTHER SIDE OKAY.

>> IF IT DOESN'T.

>> THERE'S A RISK THAT MULTIPLES EXPAND OKAY. IF THE

FED IS ACTUALLY AS GENEROUS AS THEY'RE KIND OF ALLUDING TO POTENTIALLY WITH A NEW CHAIR, YOU COULD SEE THE BACK HALF OF NEXT YEAR SEE MULTIPLE EXPANSION. RIGHT. IT COULD BE A

EXPANSION. RIGHT. IT COULD BE A REPEAT. THAT'S WHERE THEN I

REPEAT. THAT'S WHERE THEN I WOULD GET WORRIED ABOUT VALUATION. I'M NOT WORRIED

VALUATION. I'M NOT WORRIED ABOUT VALUATION HERE. BUT IF

MULTIPLES EXPANDED AND WE HAD SORT OF A BUBBLY TYPE ATMOSPHERE, THAT'S AN UPSIDE RISK POTENTIALLY IN THE SECOND HALF OF THE YEAR. SOMETHING TO

THINK ABOUT.

>> DO YOU HAVE ANY PROBLEM.

>> WE COULD I COULD DEAL WITH THAT PROBLEM.

>> YEAH.

>> TO THE EXTENT, TO THE EXTENT THAT THERE'S BEEN A LOT OF HANDWRINGING ABOUT AI AND ABOUT WHETHER WE'RE IN SOME KIND OF BUBBLE OR SOMETHING CRACKS THERE. DO YOU HAVE ANY ANXIETY

THERE. DO YOU HAVE ANY ANXIETY ON THAT FRONT?

>> NOT NOT NOW, BECAUSE WE JUST WE'RE IN THE PROCESS NOW OF RAISING MORE CAPITAL IN THE DEBT MARKETS. LIKE THAT PROCESS

DEBT MARKETS. LIKE THAT PROCESS HAS JUST BEGUN. LET'S LOOK BACK AT THE 90S AS A GOOD PROXY FOR THIS OR EVEN THE FRACKING, YOU KNOW, CAPITAL EXPENDITURES THAT ENDED WITH A CREDIT PROBLEM. WE

JUST STARTED RAISING CREDIT, OKAY. YOU CAN'T HAVE LIKE IT'S

OKAY. YOU CAN'T HAVE LIKE IT'S TOO EARLY. IT'S TOO EARLY FOR

TOO EARLY. IT'S TOO EARLY FOR TO BE WORRIED ABOUT THAT. AND

AND SO WHAT I'M LOOKING FOR THOUGH ANDREW IS IS CRITICAL IS YOU GOT TO WATCH THE CREDIT MARKETS. THE CREDIT MARKETS

MARKETS. THE CREDIT MARKETS WILL TELL US EARLY. FOR EXAMPLE,

IN THE LATE 90S CREDIT TOPPED IN THE FALL OF 98. OKAY. A YEAR

AND A HALF BEFORE OR ALMOST TWO YEARS BEFORE THE TECH BUBBLE SORT OF BURST. NOW, COULD THERE BE ANOTHER REASON WHY AI CAPEX COLLAPSES? YOU KNOW, THERE'S

COLLAPSES? YOU KNOW, THERE'S ANOTHER SHOCK. THERE'S A

ANOTHER SHOCK. THERE'S A THERE'S A NEW TECHNOLOGY THAT COMES OUT OUT OF CHINA THAT SUGGESTS THAT THIS CAPEX THAT WE'RE DOING IS IRRELEVANT. I

DON'T SEE THAT CURRENTLY LIKE ANOTHER DEEP SEA KIND OF FEAR THAT I'D BE MORE WORRIED ABOUT THAT THAN I WOULD BE WORRIED ABOUT SORT OF CREDIT ROLLING OVER IN A WAY THAT CONSTRAINS THE SPENDING.

>> OKAY, SO IF YOU COULD ONLY OWN ONE THING FOR THE YEAR, WHAT WOULD YOU OWN?

>> WELL, FOR THE FULL YEAR, I'D SAY I STILL THINK CONSUMER GOODS IS AN AREA WHERE THERE'S A LOT OF PENT UP DEMAND.

THEY'VE BEEN THROUGH SOMEWHAT OF A RECESSION. OKAY. THAT'S AN

AREA WHERE IT'S GOING TO GET A BIG BOOST FROM THE BIG BEAUTIFUL BILL FROM THE TAX CUTS IN THE FIRST HALF OF THIS YEAR. AND THEN, OF COURSE,

YEAR. AND THEN, OF COURSE, RATES COMING DOWN. AND THE

ATTACK ON AFFORDABILITY, I THINK COULD BE QUITE GOOD FOR.

>> THE BANKS ALREADY MADE THEIR RUN.

>> SOME OF THEM FOR SURE. BUT I

MEAN, ONE THING THAT SURPRISED ME IS THAT THE BANKS, WE'VE HAD A PRETTY GOOD CORRECTION SINCE SEPTEMBER IN A LOT OF SPECULATIVE PARTS OF THE MARKET, AND THE FINANCIALS HAVE NOT GIVEN UP ANY OF THOSE GAINS. I

THINK THAT'S THE BANKS TELLING YOU THAT IT'S DEREGULATION.

CHANGE IS REAL. I MEAN, THAT'S GOING TO ACCRUE RIGHT TO THE BOTTOM LINE FOR A LOT OF THESE BANKS. AND I THINK, YOU KNOW,

BANKS. AND I THINK, YOU KNOW, THE TREASURY SECRETARY IS VERY FOCUSED ON GETTING THE COMMUNITY BANKS AND THE REGIONAL BANKS GOING. AND THAT

ENGINE OF GROWTH, WHICH HAS BEEN MISSING FOR A PERIOD OF TIME, SHOULD DRIVE A VERY GOOD EARNINGS STORY FOR MOST OF THE FINANCIALS.

>> DIDN'T USE THE T WORD OR THE I WORD. TARIFFS OR REALLY

I WORD. TARIFFS OR REALLY HAVEN'T SAID ANYTHING ABOUT INFLATION. I DON'T THINK.

INFLATION. I DON'T THINK.

>> WE'LL START WITH THE EASY ONE OKAY. INFLATION I WANT TO

ONE OKAY. INFLATION I WANT TO BE THIS IS ALSO DIFFERENTIATED VIEW. ONE THING THAT WOULD

VIEW. ONE THING THAT WOULD BOTHER ME IS IF INFLATION COLLAPSES OKAY. LIKE WE NEED

COLLAPSES OKAY. LIKE WE NEED SOME INFLATION. IN OTHER WORDS

SOME INFLATION. IN OTHER WORDS PRICING POWER SEEING COMPANIES PASS THROUGH SOME OF THESE COSTS THAT HAVE BEEN IN THE SYSTEM THAT'S GOOD FOR STOCKS UNTIL THE FED HAS TO REACT TO IT. I DON'T SEE THAT BEING A

IT. I DON'T SEE THAT BEING A RISK FOR THIS YEAR. IT'S A

POSITIVE DEVELOPMENT. I THINK

INFLATION IS GOING TO STAY WHERE IT IS, MAYBE EVEN ACCELERATE IN SOME AREAS, PARTICULARLY FROM AN EARNINGS STANDPOINT. AND THEN ON TARIFFS,

STANDPOINT. AND THEN ON TARIFFS, I MEAN, LOOK, WE HAVE A BIG ANNOUNCEMENT POTENTIALLY TOMORROW YOU KNOW REBATE ON THESE TARIFFS SHORT TERM THAT WOULD BE A POSITIVE FOR SOME OF OUR CONSUMER AREAS. I DON'T

REALLY HAVE A THAT COULD COME.

>> WITH THE SUPREME COURT.

>> THE SUPREME COURT RULING. I

DON'T KNOW HOW THEY'RE GOING TO RULE ON THAT. BUT SHORT TERM IT COULD BE A POSITIVE. THEY

DECIDE THAT THESE TARIFFS HAVE TO BE REFUNDED. I THINK IT WILL GET CAUGHT UP IN THE COURTS ULTIMATELY, AND I THINK THEY'LL FIND OTHER WAYS TO INCREASE TARIFFS THROUGH, THROUGH THROUGH EXECUTIVE ORDER.

>> YOU MENTIONED BOORSTIN IN GENERAL. DO YOU LIKE SOME OF

GENERAL. DO YOU LIKE SOME OF THE PEOPLE THAT ARE RUNNING THINGS NOW, LIKE LIKE BESSENT?

I THINK BESSENT ISN'T HE LIKE AN ASSET RIGHT NOW?

>> FANTASTIC. I MEAN, I THINK THE CABINET FOR THE MOST PART IS QUITE IMPRESSIVE. A LOT OF THEM COME FROM PRIVATE INDUSTRY, WHICH IS, WHICH IS.

>> WHICH IS A SHOCKING CHANGE.

YEAH.

>> GOOD. YEAH. AND I THINK AND I DON'T THINK THEY'RE LIFERS, YOU KNOW, THEY'RE NOT GOING TO SOME OF THEM, SOME OF THEM ARE LIFERS. BUT I THINK A LOT OF

LIFERS. BUT I THINK A LOT OF THEM ARE NOT GOING TO BE LIFE.

THEY'RE THERE TO DO A JOB. AND

I THINK THEY'RE THEY WORK VERY, VERY HARD. THAT'S WHAT I LIKE

VERY HARD. THAT'S WHAT I LIKE TO SEE.

>> I WAS THINKING MAYBE JAY POWELL IS PRETTY GOOD. I WAS

THINKING THAT, I MEAN, INFLATION GOT OUT OF HAND. IT

DID, THERE'S NO DOUBT. BUT

MAYBE THAT WAS PANDEMIC RELATED.

BUT SINCE THEN I JUST DON'T SEE A LOT TO REALLY CARP ABOUT RIGHT NOW IN TERMS OF MONETARY POLICY, DO YOU KNOW.

>> BUT THAT'S WHY I MEAN, THAT'S WHY THE MARKETS ARE SO RELAXED. I MEAN, LIKE BOND IS

RELAXED. I MEAN, LIKE BOND IS RELAXED, YOU KNOW, AND THAT WAS ONE THING I WAS WORRIED ABOUT, AS I SAID AT THE BEGINNING, WHICH IS THE LIQUIDITY PICTURE HAS DETERIORATED SINCE SEPTEMBER. BUT NOW THE FED IS

SEPTEMBER. BUT NOW THE FED IS GETTING IN FRONT OF THAT. AND

THAT'S THAT'S JAY POWELL DOING HIS JOB. EVERYBODY CRITICIZES

HIS JOB. EVERYBODY CRITICIZES THE FED. JAY POWELL HAS BEEN A

THE FED. JAY POWELL HAS BEEN A GOOD CHAIR. HE HAS DONE HIS JOB

GOOD CHAIR. HE HAS DONE HIS JOB WHEN HE NEEDED TO. HE'S HE'S A RATIONAL PERSON.

>> SO HOW'S HE GOING TO GO DOWN IN THE END.

>> I THINK HE'S A GUY WHO DEALT WITH A CRISIS PRETTY WELL GENERALLY. I MEAN HE HAD

GENERALLY. I MEAN HE HAD OBVIOUSLY A SNAFU IN 22. HE LET

INFLATION GET TOO FAR OUT OF THE BAG. BUT LET'S NOT FORGET

THE BAG. BUT LET'S NOT FORGET THAT THE GOVERNMENT WAS SPENDING MONEY LIKE CRAZY POST THE PANDEMIC. AND SO THE FED'S

THE PANDEMIC. AND SO THE FED'S JOB, AS I'VE SAID MANY TIMES, IS TO HELP THE GOVERNMENT FUND ITSELF SO THAT HE GOT CRITICIZED FOR DOING QE IN 2021 AND NOT RAISING RATES. BUT LIKE,

WE DIDN'T KNOW AT THAT POINT.

WE COULDN'T LET THE THING COLLAPSE BECAUSE THEN YOU HAVE DEFLATION. AND THAT'S A THAT'S

DEFLATION. AND THAT'S A THAT'S A REAL PROBLEM.

>> THEIR JOB IS TO BE A PARTNER IN CRIME AND ENABLE THE PROFLIGATE SPENDING. SO THAT'S

PROFLIGATE SPENDING. SO THAT'S WHAT THEY'RE SUPPOSED TO.

THAT'S WHAT THEY'RE SUPPOSED TO DO.

>> I THINK THAT HE'S I MEAN, LOOK, THE PRESIDENT DOESN'T LIKE