Markets are Hard to Handle with Mike Wilson of Morgan Stanley
Dec 1, 2023
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Mike Wilson, market expert and analyst from Morgan Stanley, joins the hosts to discuss the November stock market rally, late-cycle behavior, earnings, the bond market, the worst possible scenario for stocks, the single biggest risk for 2024, what consensus could get wrong next year, sentiment indicators, stock market concentration, M&A, and the appeal of U.S. markets as a safe haven. Later, they discuss the Elon Musk DealBook interview, the meteoric rise in the S&P 500, GM's $10B buyback, M&A, the energy space, JPMorgan survey, LME wins High Court ruling, and Danny's NFL picks.
The market is facing challenges with poor earnings and a difficult operating environment, despite the success of certain stocks like Apple, Microsoft, and Alphabet.
There are concerns about a potential recession and signs of the employment cycle deteriorating, which could negatively impact the economy.
High valuation of certain stocks, particularly the MAG 7, may require re-rating, and sentiment indicators suggest a contrarian bullish sentiment with too much risk exposure.
The concentration of market cap in a few stocks poses risks, and a rotation is needed with capital reallocation for better value opportunities in the market.
Deep dives
Mike Wilson's Economic Outlook
Mike Wilson, Chief Equity Strategist at Morgan Stanley, discusses his outlook for 2024 and highlights the challenges faced by the market. He emphasizes that while certain stocks, such as the MAG 7 (Apple, Microsoft, Alphabet, etc.), have performed well, the average stock and most stocks are struggling due to a difficult operating environment and poor earnings. Wilson notes that the only positive aspect for the market is that the Fed's hiking cycle is ending, but cautions that a soft landing may not be a good sign for growth next year. He also warns about the concentration of market cap in a small number of stocks and the potential risk in private credit. Wilson suggests that more M&A activity and capital reallocation may be needed to provide opportunities for investors.
Concerns About Recession Risk
Mike Wilson discusses his concerns about a potential recession and the difficulty in forecasting multiples and market reactions. He highlights that the risk of a recession seems lower now compared to a year ago, despite being later in the cycle and the Fed being closer to the end of rate hikes. Wilson emphasizes that there are signs of the employment cycle deteriorating, which could lead to layoffs and negative impacts on the economy. He also notes the challenges posed by the government's budget deficit, underwriting standards in private credit, and the concentration of market cap in a few stocks.
Valuation Concerns and Market Sentiment
Mike Wilson discusses the high valuation of certain stocks, particularly the MAG 7, which make up a significant portion of the market cap. He suggests that these stocks may need to be re-rated and that capital reallocation could provide opportunities in other parts of the market. Wilson points out that sentiment indicators, such as institutional and individual investor positioning, suggest a bullish sentiment that could be contrarian and indicates too much risk exposure. He also mentions the importance of closely monitoring the volatility index (VIX) and highlights the need for disciplined investing during this time.
Risks of Concentration and the Path Forward
Mike Wilson expresses concerns about the concentration of market cap in a handful of stocks and the potential risks associated with it. He acknowledges that the U.S. market appears more attractive than other regions due to better relative growth prospects. However, Wilson believes that a rotation is needed, where capital is reallocated to other parts of the market that offer better value. He discusses the need for more M&A activity, particularly in the private market, and suggests that a re-rating and correction may be necessary for the overall market to create buying opportunities.
Eagles vs. San Francisco: Eagles a promising underdog at home
The Philadelphia Eagles, coming off a crazy game against the Bills, are a solid underdog pick at home against San Francisco. Despite San Francisco looking sharp, the Eagles have been impressive, and quarterback Jalen Hurts has been in the MVP conversation. If you believe in San Francisco, consider betting on Brock Purdy for MVP instead.
Green Bay vs. Kansas City: Green Bay a live dog in Lambeau
Green Bay has been playing well and is a live dog at home against Kansas City, who hasn't looked strong. Betting on the Packers in Lambeau Field, where they are back in the playoff hunt, is a favorable option, especially with the generous +6 spread.
Denver vs. Houston: Hot Denver a solid pick with points
The Denver Broncos, one of the hottest teams in football, are a solid pick with a spread of +3.5 against the Houston Texans. Despite Houston having some promising players, Denver is in the playoff hunt and is expected to keep the game close.
Rams vs. Cleveland: Rams favored at home against banged-up Cleveland
The Los Angeles Rams, playing at home, are favored by -3.5 against the Cleveland Browns. With injuries affecting Cleveland's lineup, including the possibility of Joe Flacco playing quarterback, the Rams should have an advantage in this game.
Mike Wilson joins the hosts for this episode of On The Tape. They talk about the November stock market rally (3:00), classic late-cycle behavior (6:30), earnings (8:00), the bond market (11:30), why the soft landing is the worst possible scenario for stocks (13:00), the single biggest risk for 2024 that investors aren’t taking seriously (13:50), what consensus could get wrong next year (18:00), the employment cycle (24:30), sentiment indicators (30:30), volatility (33:00), private credit (34:20), stock market concentration (37:30), M&A (41:00), and the appeal of U.S. markets as a safe haven (41:30).
On The Tape is a weekly podcast with CNBC Fast Money’s Guy Adami, Dan Nathan and Danny Moses. They’re offering takes on the biggest market-moving headlines of the week, trade ideas, in-depth analysis, tips and advice. Each episode, they are joined by prominent Wall Street participants to help viewers make smarter investment decisions. Bear market, bull market, recession, inflation or deflation… we’re here to help guide your portfolio into the green. Risk Reversal brings you years of experience from former Wall Street insiders trading stocks to experts in the commodity market.
