Morgan Stanley Chief US Equity Strategist Mike Wilson Talks ‘Liberation Day’ Not a Clearing Event
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The second hour of Bloomberg surveillance starts right now and we start with some scores. Equity futures on the S&P 500 negative by nine tenths of one percent on the Nasdaq. The Nasdaq looks like this. The Nasdaq 100 down by one point two five. The Russell down by one point two. In the bond market two year, ten year, thirty year we receive a bid. Yields down by six basis points at the front end. Down by five on tens. Down by five on thirties. Your week ahead.

is absolutely stacked full of economic data, including payrolls on Friday and an address from Fed Chair Jay Powell going into the weekend. But before we get there, it's all about Wednesday, Liberation Day. It's April 2nd. It's April 2nd, and it feels like the mood has shifted. What we've heard from the president last week was that he's willing to be lenient, he's willing to be flexible. The reporting now seems they're going back to what he's been speaking about for months on the campaign trail, honestly, for decades when it comes to tariffs.

A universal tariff. Now, the big question is, is Wednesday the start of a negotiation when it comes to U.S. and their trading partners? Does Trump come in with a very maximalist approach? Or is this going to be the new trade rules of the road for this administration going forward? We've all got to wake up to what's actually happening. And what's happening is more tariffs repeatedly over the last few months. And what's happening on Wall Street, more revisions. This from Goldman Sachs. So David Koston is now at 5,700 year end.

started the year at 65, dropped that to 62 only a month ago. 5,700 is the year-end outlook. Then you've got Jan Hatsis and the team at Goldman Sachs looking for this stagflationary mix that's getting everyone's attention. 3.5% on PCE, just 1% on GDP. And what's driving a lot of that is the fact that for the second time this month, Goldman Sachs raised where they expect the tariff barriers to go. So they are expecting higher waterways,

to go up when it comes to this administration. It's not just also on Wall Street, Jonathan. Over the weekend, CBS polling, a majority of Americans are saying they want this president to bring inflation down, costs down of goods and services and focus less on tariffs. - Had a few reports over the weekend, The Washington Post saying that the president wants to go big. It's pushing the team to go large.

Politico reporting that no one in the administration knows what the president is going to do in two days time. Well, Kevin Haas said his NEC director had this to say on Fox News. I can't give you any forward guidance on what's going to happen this week. The president has got a heck of a lot of analysis before him and he's going to make the right choice, I'm sure. Now, is that the president has made a decision that I'm not fully on board with or is that we actually don't know what the president is going to decide? There is a key report coming out tomorrow.

A question that I'm talking to a lot of folks about in Washington is whether or not the report is going to be made public. When Trump came into office, he told his trade representative he wants a full analysis on how the U.S. is dealing with other trade partners when it comes to trade deficits, reciprocity, everything under the sun. That report goes in front of the president tomorrow, and then I think he'll make his final decision. Not many people want to be long going into that event.

speech to the move we're seeing this morning we're down by nine tenths of one percent on the s p coming up this hour mike wilson of morgan stanley with stocks on a three-day slide henry the trays of vader partners as the world prepares for liberation day and vikram malhotra of mizuho and why ai data center concerns may be overblown we begin this out with stock softer as trade uncertainty hangs over markets mike wilson of morgan stanley writing this week's reciprocal tariff announcement is likely a stepping stone for further negotiations

as opposed to a clearing event. Mike joins us now for more. Mike, good morning. Good morning, John. Why is that distinction important? Well, I think that everybody's looking for a final piece here. This is going to take time. Not unlike a lot of the other policies that have come out this year, this is what we kind of signed up for. I don't think so far what the president has done has really been surprising.

All of the policy changes so far have been growth negative. And that, you know, we've likened this to a new CEO coming in, right? They want to restructure the company. They're restructuring the company. They're going to kitchen sink it. And then they're going to try to make, you know, their plan work for next year. So this is going to take some time. And, you know, this level that we're at now is critical from a market standpoint, not so much from the administration standpoint. I think that's also something to acknowledge. It's also very on brand.

for Trump to take a maximalist approach in the very beginning, but how messy could it be if he comes in with this maximalist, aggressive approach, and then we have retaliation from trading partners? Well, look, it's the NAFTA. It's the best alternative to a negotiated agreement, and the BATNA. And that is classic negotiating tactic. You come in way over here to the right with the hope of kind of settling in the middle. So I don't think that's unusual either. The response from trade partners is that means they're engaging.

Okay, so that's how you get people to engage in your discussion. You come out with a big splash, they have to come to the table and negotiations begin. We're not even at the table yet. Okay, so that's why this is gonna be very uncertain for a period of time. - I think some countries think that they are at the table 'cause they sent a few representatives here the past few weeks, but I agree with you, it really hasn't started. So what do you do if you're an investor?

Well, you've done what we've sort of done. You avoid the areas that are going to be most affected. Consumer discretionary goods and that area has been hit the hardest, so maybe that's getting a little bit extreme. I would say, you know, defensively positioned, high quality, that's been our core portfolio. Now we've made some trading calls lately that would

have gone against that. Some of those worked, some of those didn't work. But I think at this point you want to be up the quality curve, you want to be in businesses that can kind of mitigate some of these concerns. You have pricing power, you have the ability to kind of move production around, you can take inventory on to kind of buffer this for 60 or 90 days, which we've seen all of those mitigation strategies, something we wrote about in our note today. So those are the kind of companies we want to own in this period of time. I do believe there will be a clearing event at some point this year, but we're not there yet. Some of the changes you have made that aren't working, let's talk about them.

International, DAX this morning down 2%, Nikkei overnight down 4%, international starting to turn. Subtle change from where we were over the last month or so. What's changing? Well, that's right. And so, last week's note, we kind of made the call that U.S. probably does better than these other regions because at the end of the day, those regions you mentioned are most sensitive to global trade, particularly Japan.

So the fact that it was down 4% I think is another sign that, hey, actually the market now is laser focused on this tariff for trade issue as opposed to some of the other issues that it's been kind of worrying about here. So that relative value, if you will, still looks good to us. It may happen in a down tape, which is also something to consider because the U.S. is still the highest quality market in the world and in an uncertain world, high quality will outperform. But you think those European long sort of

built up over the past few months. They might be in trouble here. I think that's right. I think there's a little extension. Our European strategy team is on the same page. There are some good things going on in Europe that haven't been happening for decades, potentially. But boy, that's going to take even longer than this tariff negotiation. You're talking about

you know country spending more money on fiscal deregulation and this is a multi-year transition in the stock market you know some cases of fifteen twenty percent so besides ryan mattel or any other industrial military company in europe do you like anything there well i mean i think the financials have been still a place to think about that have a potential structural change a benefit in that regard i think

things that have levered to the consumer. But once again, these kind of got extended. And from my standpoint, I think there's better value now in the U.S. in some of these areas. I'm sure you saw the new numbers coming out of Goldman Sachs and the team, new forecasts from Jan Hatzius. If we can just throw them up on the screen, 1% on GDP, 3.5% on PCE. That's a stagflation remix. What are you telling clients that are asking you about how we would trade stagflation in America?

We're not quite in the stagflation camp. We're more in the camp that expectations are probably not where reality is, which is that growth is worse than people thought and inflation is a bit stickier. And that's how we came into this year. So we didn't mess around with our year-end targets, but we have been messing around with our short-term targets. So we're in that $5,500 to, I would say, $5,859 now. We've kind of chopped off the upper end of that for the first half of this year.

I'm not willing to throw in the towel yet completely on the full year because as we've been saying, the good stuff of the policy changes that we expect could start to feed into the equity markets by year end. Could we push that timing out three, six months? Sure. But right now we're still in that 5500 to 6100 range with probably a truncated upper band

And now if you get universal tariffs, which is something that we talked about in this morning's note, then that lower half, that lower end of the band maybe comes down. So if we break down this week and universal tariffs are the reason, we could see something even lower than 5,500 in the short term. Can we talk about the rebalancing you're expecting, though?

the ultimate vision of this administration and why you still believe the more complete policy mix is still bullish? Yeah, I think it's constructive. I'm not sure it's wildly bullish because valuations were probably the biggest constraint coming in. I think it's bullish for a lot of parts of the market that have underperformed for the last three or four years.

Our vision, or I think the administration's vision, quite frankly, is very simple. They want to effect a slowdown in government. They want to kind of liberate the private economy through things like deregulation, keeping tax rates lower. Maybe tariffs are part of that storyline, fine. And that transition from kind of public government allocation of resources to private enterprise allocation of resources actually at least are broadening out. Something that's been absent really for the last two or three years, something we've talked about here many times,

this crowding out feature of the government crowding out small businesses, crowding out the average consumer. And look, I think they've been crystal clear in their messaging. It's not going to be fun for a period of time. We have to sort of detox, as the Secretary of Treasury mentioned. There's going to be an adjustment period, as the President has said. So it's been crystal clear what they've been doing. The whole eat your vegetables, then get a dessert. When it comes to dessert, we're only talking about current policy extension.

How exciting is that for the market if you're just talking about an extension of TCJA when it comes to tax cuts and not actual additional tax cuts? Well, that's... Okay, so what you're talking about is fiscal stimulus, and that's what we have to detox from. So we don't need more fiscal stimulus. We need less fiscal stimulus. We need the private enterprise of America doing organic growth. If taxes are going up on sales goods, don't you need more tax cuts for individual...

- Well, that's the idea is that we're going to keep taxes lower, maybe lower than further if tariffs A, bring in revenue and B, there's a negotiating ploy. So we'll see. I mean, this is going to be very messy and this is not gonna be easy transition, but John asks, what is the bullish story over the next 12 months

I think it's that and it's going to be a lot of uncertainty. But I still think that is the plan. I still think what I see so far is a direction in that manner. And look, stock operators and financial market operators are just going to have to deal with this adjustment. And that's the consternation right now. Mike, Trump put versus Fed put. Who blinks first and why?

Well, I mean, I've taken the view that it's probably the Fed because growth is deteriorating further here. Now, in other words, I think that the concern around tariffs and what that's doing to inflation is it kind of gave the Fed an excuse to take a break. Let's not forget the Fed cut 100 basis points last fall.

really in the absence of any labor issues. So the question is, we're digesting that. Also, the back end of the bond market rates went up during that period. So I think the tariffs provide a nice excuse for the Fed to take a pause here. But I have no doubt that if we saw a major deterioration in the labor market, the Fed would act.

And I don't think the president is in a hurry to blink because, as we were discussing kind of off camera, I mean, they have to do things quickly here. And they've said that. Like, we've got to do as much as we can the first six months for a couple reasons. A, we don't want to get dragged back into the quicksand, okay, of, you know, the policymaking. And secondarily, you know, the midterms come up in two years. You know, your last guest was just talking about some of the political ramifications. I think that's not a concern now, but it probably becomes more of a concern later this year.

But when it looks at the political ramifications, you are seeing it come up, not just consumer sentiment, but also polls. People are still concerned about the cost of goods now, and they're concerned about tariffs adding to that. What is going to regulate Trump if it's not the politics?

I think, look, he's really trying to follow his agenda. He's trying to check the boxes on the things that he promised he would do for the American people. And a lot of those things are market unfriendly. I mean, that's what we're really discussing here. Is he worried about the market? Is he worried about his agenda and doing those things? I think he's more worried about his agenda. And that was a big adjustment period. I think in January, February, we were talking about this. And I think people were a little complacent on this idea that he was going to be so markets-focused.

And to me, that's really when the stock market in the US started to have problems is when first the Treasury Secretary said it and then the President basically supported that view. And that's the big adjustment thing for the markets. Not the economy, not jobs, not confidence, but the markets. And the problem is we're such a financialized economy now that the markets are the economy.

And that's really weighing on consumer sentiment. My credit to you. I remember that morning very early on this year and you came in and you said he's not talking about the market. He's not talking about the market and he's continued to ignore the stock market. The focus that we've heard is Main Street over Wall Street. And that is a shift in a second term relative to the first term. That's the term I was going to use, Main Street over Wall Street, because it's the term the Treasury Secretary has used time and time again. He sat in a

room at the Economic Club of New York just a few weeks ago and said, Wall Street has done very well. I was one of you. Our focus is squarely on mainstream and making sure everyday Americans are doing better, which means bringing jobs back to the U.S. heartland. Yeah. I want to add something here I think that people weren't aware of. In Trump's first term, we had massive slack in the economy.

We were coming off a period of secular stagnation. So, you know, reflationary policy, right, which is what Trump came in with the first time, made a lot of sense. And we were very bullish on that at the time. This time around, we came in with no slack. We have a negative output gap. Okay, so it's just a very different setup. Even if they wanted to be pro-growth, they really can't, which is why I think they're focused on the bond market, back-end yields, as opposed to the stock market. And to me, that fits neatly with the setup that

What we had had nothing to do with the election. That's just a setup that we're in. Mike, a clinic has always got to catch up. Appreciate it. Mike Wilson there of Morgan Stanley. What caffeinated foodstuff is currently suffering a shortage? What company's new AI model is called QWQ32B? Prada is in talks to buy which luxury fashion brand for $1.6 billion?

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