In short
Macro catalysts and Q3 earnings, arguing for “more confidence” in a bull market that began in April, with leadership still concentrated in higher-quality stocks.
Guests
None; hosted by Mike Wilson, Morgan Stanley CIO and Chief U.S. Equity Strategist.
Key claims
U.S.-China trade deal (tariffs cut 10%, tech export controls delayed a year; China pauses rare earths export controls, resumes soybean purchases, and cracks down on fentanyl) is a major positive. Fed meeting: Powell said policy isn’t on a preset path; odds of a December rate cut fell (92% to 68%), equity breadth stayed weak, and leadership likely remains narrow unless growth holds and cuts are modest. QT ending in December may be delayed; watch overnight repo usage and secured funding spreads—rising stress could hurt equities, especially speculative areas, but may become a year-end buying opportunity.
Notable examples
revenue surprises in earnings season are “more than double” the historical run rate; leadership broadening to small-cap/low-quality is still held back by the Fed fighting inflation.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VORecent Macro Events Overview
0:14 to 1:54
Discussion on recent macro events including trade agreements and Fed meeting outcomes.
“Last week marked the passage of two key macro events, the meeting on trade between Presidents Trump and Xi and the October Fed meeting.”
Market Reactions and Earnings Outlook
1:54 to 3:06
Analysis of market reactions to macro events and expectations for earnings growth.
“in the funding markets and indicated the Fed could end QT sooner rather than later.”
Quality vs. Speculative Stocks
3:06 to 4:10
Advice on investment strategies focusing on quality stocks amid uncertainty.
“with the end of the rolling recession and the beginning of a new cycle.”
Transcript
Automatic transcript. May contain errors.0:00Mike Wilson: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 recent macro events and third quarter earnings results. It's Monday, November 3rd at 1130 a.m. in New York, so let's get after it. Last week marked the passage of two key macro events, the meeting on trade between Presidents Trump and Xi and the October Fed meeting. On the trade front, the U.S. agreed to cut tariffs on China by 10 % and delay newly proposed tech export controls for a year. In exchange, China agreed to pause its proposed export controls on rare earths and resume soybean purchases while cracking down on fentanyl.
0:43Mike Wilson:This is a major positive relative to how developments could have gone following the sharp escalation a few weeks ago, and markets have responded accordingly. With respect to the Fed meeting, Powell suggested policy is not on a preset course, which took the bond market probability of a December rate cut down from 92 % before the meeting to 68 % currently. It also led to some modest consolidation in equity prices, while breadth remained very weak. In my view, the market is saying that if growth holds up, but the Fed only cuts rates modestly, leadership is likely to remain narrow and up the quality curve.
1:20Mike Wilson:Over the next 6 to 12 months, we think moderate weakness in lagging labor data and a stronger than expected earnings backdrop ultimately sets the stage for a broadening in market leadership. However, we're also respectful of the signals the markets are sending in the near term. This means it's still too early to press the small cap, low quality, deep cyclical rotation trade until the Fed shows a clear willingness to get ahead of the curve. Perhaps just as important for markets was the Fed's decision to end quantitative tightening or QT, in December. Recently, Jay Powell has acknowledged the potential for rising stress in the funding markets and indicated the Fed could end QT sooner rather than later.
2:00Mike Wilson:Over the past month, expectations for the timing of this QT termination ranged from immediately to as late as February. Powell seemed to split the difference at last week's meeting, and this could be viewed as disappointing to some market participants. In order to monitor this development, I'll be watching how short-term funding markets behave. Specifically, overnight repo usage has been on the rise, and if that continues along with the widening spreads between the secured overnight financing rate in Fed funds, I believe equity markets are likely to trade poorly, especially in some of the more speculative areas.
2:36Mike Wilson:In short, we think higher quality areas of the market are likely to continue to outperform until this dynamic is settled. Meanwhile, earnings season is in full swing and the real standout has been the upside in revenue surprises, which is currently more than double the historical run rate. We think this could provide further support that our rolling recovery thesis is underway, which leads to much better earnings growth than most are expecting. Bottom line, we're gaining more confidence in our core view that the new bull market began in April with the end of the rolling recession and the beginning of a new cycle.
3:10Mike Wilson:This means higher and broader earnings growth in 2026 and a potentially different leadership in the equity market. The full broadening out to lower quality, smaller capitalization stocks is being held back by a Fed that continues to fight inflation, perhaps not realizing how much the private economy and average consumer needs lower rates for this rolling recovery to fully blossom. Last week's Fed meeting could be disappointing in that regard in the short run for equity markets. As a result, stay up the quality curve until we get more clarity on the timing of a more dovish path by the Fed and look for stress in funding markets as a possible buying opportunity in the year end.
3:50Mike Wilson:Thanks for tuning in. I hope you found it informative and useful. 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. The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.
From the publisher
Our CIO and Chief U.S. Equity Strategist Mike Wilson looks at buying opportunities approaching year-end, as U.S. trade policy and the Fed find middle ground.
Read more insights from Morgan Stanley.
----- Transcript -----
Mike Wilson: Welcome to Thoughts on the Market. I'm Mike Wilson, Morgan Stanley’s CIO and Chief U.S. Equity Strategist. Today on the podcast I’ll be discussing recent macro events and third quarter earnings results.
It's Monday, November 3rd at 11:30am in New York.
So, let’s get after it.
Last week marked the passage of two key macro events: the meeting on trade between Presidents Trump and Xi and the October Fed meeting. On the trade front, the U.S. agreed to cut tariffs on China by 10 percent and delay newly proposed tech export controls for a year. In exchange, China agreed to pause its proposed export controls on rare earths, and resume soybean purchases while cracking down on fentanyl. This is a major positive relative to how developments could have gone following the sharp escalation a few weeks ago, and markets have responded accordingly.
With respect to the Fed meeting, Powell suggested policy is not on a preset course which took the bond market probability of a December rate cut down from 92 percent before the meeting to 68 percent currently. It also led to some modest consolidation in equity prices while breadth remained very weak. In my view, the market is saying that if growth holds up but the Fed only cuts rates modestly, leadership is likely to remain narrow and up the quality curve.
Over the next 6 to 12 months, we think moderate weakness in lagging labor data, and a stronger than expected earnings backdrop ultimately sets the stage for a broadening in market leadership. However, we are also respectful of the signals the markets are sending in the near term. This means it's still too early to press the small cap/low quality/deep cyclical rotation trade until the Fed shows a clear willingness to get ahead of the curve. Perhaps just as important for markets was the Fed's decision to end Quantitative Tightening, or QT, in December.
Recently, Jay Powell has acknowledged the potential for rising stress in the funding markets and indicated the Fed could end QT sooner rather than later. Over the past month, expectations for the timing of this QT termination ranged from immediately to as late as February. Powell seemed to split the difference at last week's meeting and this could be viewed as disappointing to some market participants.
In order to monitor this development, I will be watching how short-term funding markets behave. Specifically, overnight repo usage has been on the rise and if that continues along with the widening spreads between the Secured Overnight Financing Rate and fed funds, I believe equity markets are likely to trade poorly, especially in some of the more speculative areas. In short, we think higher quality areas of the market are likely to continue to outperform until this dynamic is settled.
Meanwhile, earnings season is in full swing and the real standout has been the upside in revenue surprises, which is currently more than double the historical run-rate. We think this could provide further support that our rolling recovery thesis is under way which leads to much better earnings growth than most are expecting.
Bottom line, we are gaining more confidence in our core view that a new bull market began in April with the end of the rolling recession and the beginning of a new cycle. This means higher and broader earnings growth in 2026 and a potentially different leadership in the equity market. The full broadening out to lower quality, smaller capitalization stocks is being held back by a Fed that continues to fight inflation; perhaps not realizing how much the private economy and average consumer needs lower rates for this rolling recovery to fully blossom.
Last week’s Fed meeting could be disappointing in that regard in the short run for equity markets. As a result, stay up the quality curve until we get more clarity on the timing of a more dovish path by the Fed and look for stress in funding markets as a possible buying opportunity into year end.
Thanks for tuning in; I hope you found it informative and useful. 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!