Mike Wilson, Morgan Stanley's chief US equity strategist and formerly one of Wall Street's staunchest bears, believes a US bull market is forming. However, he anticipates the S&P 500 might experience a dip this quarter before continuing its upward trajectory.
Wilson believes that the impact of U.S. President Donald Trump's trade policies on corporate balance sheets could cause the stock market to decline by 5%-10% this quarter. However, he asserts that this downturn will be short-lived and will provide investors with a highly attractive entry point. Ultimately, improved corporate earnings growth expectations are projected to propel the stock market higher.
"This is what the beginning of a new bull market looks like," Wilson said in a Bloomberg Surveillance interview on Thursday. "It’s very powerful, it doesn’t give you a lot of chances to get in. The pace of change is faster than expected, and it’s accelerating."
He added that any pullback would be “short and shallow,” and that he would “absolutely” be a buyer on dips.
The S&P 500 hit another record high on Thursday, its rally reaching a point where it has added approximately $11.5 trillion to its market capitalization in just a few months. After teetering on the brink of a bear market in early April following Trump's imposition of sweeping tariffs on global trading partners, his decision to suspend the tariffs a week later ignited this latest wave of market enthusiasm.
Wilson was one of the few Wall Street forecasters who maintained a bullish outlook on U.S. equities during the period of market volatility. Many of his peers were quick to downgrade their outlooks, but as the market rebounded to new highs, they were forced to change course.
The recent rise in the S&P 500 comes against the backdrop of U.S. companies and the economy demonstrating resilience in the face of the White House's ever-changing trade strategies. In addition, the potential for earnings growth resulting from the recently passed tax law has contributed to the market's enthusiasm.
"The earnings revision breadth is exploding," Wilson said. "There’s no question that companies are being resourceful when it comes to dealing with tariffs."
The strategist believes the third quarter "could be a risk-concentrated quarter" because the impact of tariffs may begin to show up in the cost of product sales. But he anticipates that the effect on the market will be temporary, and that investors will quickly shift their focus to growth expectations for 2026.
Thursday’s U.S. retail sales report for June offered support for this projection, easing some concerns about consumer spending.
The start of earnings season has painted a mixed picture of how companies are coping with Trump's shifting trade plans. United Airlines Holdings Inc. said Thursday that the outlook for the second half of the year has become more predictable, and that the company is likely to surpass earnings targets as travelers begin rebooking flights. Meanwhile, Alcoa Corp., the largest U.S. aluminum producer, said tariffs on imported Canadian products cost it $115 million in the second quarter.
Nonetheless, Wilson still anticipates that the market will continue to rise, even though the uncertainty surrounding the White House's trade plans could lead to a short-term dip.
"The market bottomed in April," Wilson said. "Looking at the pace of change, all the metrics we watch have recovered dramatically, and it’s even surprised us how good it’s been."
The current market environment highlights the importance of corporate adaptability and resilience. Companies that can effectively navigate trade uncertainties and leverage opportunities arising from tax reforms are likely to outperform. While short-term volatility may persist, a focus on long-term growth potential and the ability to adjust to evolving economic conditions are crucial for investors.
Investors should consider diversifying their portfolios across various sectors and asset classes to mitigate risks associated with trade policies and economic uncertainties. A well-diversified portfolio can help cushion against potential downturns and capitalize on growth opportunities across different market segments.
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