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Investing.com -- Morgan Stanley (NYSE:MS) strategist Mike Wilson reiterated his bullish stance on U.S. equities in a note Monday, stating that the bank would be buyers into any market weakness, despite expectations of a modest third-quarter pullback.
“We’ve been bullish for the last few months primarily due to the V-shaped recovery in EPS revisions breadth,” Wilson wrote in a new note.
He said April’s “Capitulation Day” and “Liberation Day” marked the end of the bear market that began in 2024 and ushered in a new bull market, now four months old.
While Friday’s soft labour report and a Federal Reserve still on hold could trigger a short-term consolidation, Wilson said, “We’re buyers of pullbacks and bullish next 12M.”
The recent employment data, including “the lagging 2-month payroll net revision,” was the worst since the early Covid lockdowns, underscoring that “stocks bottom on bad news.”
Wilson cautioned that “bull markets do see pullbacks,” and noted the third quarter’s seasonal weakness, along with “lagged impacts of tariffs on growth data” and inflation concerns, may create conditions for a near-term correction.
However, he sees any such decline as temporary. “Friday may be all we get to the downside for now,” he wrote.
Looking further out, Morgan Stanley is “gaining confidence in our 12-month bullish view,” supported by positive operating leverage, AI adoption, dollar weakness, OBBBA tax savings, and easy comparisons.
The firm expects that “fading inflation” and a softer labor market will eventually allow the Fed to begin rate cuts, potentially by the fourth quarter.
“In our view, the rolling recovery has begun,” Wilson stated. “The combination of a fading inflation impulse later this year plus softness in the labor market should foster a robust cutting cycle. The equity market is likely to digest Fed cuts more directly starting in 4Q of this year, if not sooner, should the data support a Fed pivot.”