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Investing.com -- Morgan Stanley’s chief U.S. equity strategist Mike Wilson said last week’s weak payroll numbers reinforce his view that the economy is moving from a “rolling recession” into a “rolling recovery.”
“We’re not of the view that a rapid/acute rise in the unemployment rate and/or significantly negative payroll numbers are coming unless we were to see another shock to the economy,” Wilson wrote in a client note.
He pointed to a “v-shaped rebound in earnings revisions breadth” as evidence that corporate confidence “has improved materially since Liberation Day,” with June marking the low point for payrolls this cycle.
Wilson acknowledged that some labour market weakness remains, particularly in government jobs, but argued this should prompt a dovish response from the Federal Reserve.
“This type of softness in lagging jobs data should drive a more dovish reaction function from the Fed, but there’s likely tension around this dynamic in the near-term,” he said.
According to Wilson, the market’s ability to absorb weaker labour data depends on whether monetary policy easing is “significant enough to counter the growth risks.”
Near-term volatility could persist. Wilson said the dynamics around the Fed and funding markets “could lead to choppy price action during a weak seasonal window in September/October.”
However, he expects this to “set up a strong finish to the year and 2026 given our conviction for a durable and broad earnings recovery.”
As for positioning, Wilson favours large-cap Healthcare as a defensive hedge. He noted the sector’s low valuations and strengthening earnings revisions, adding: “Biotech shows strong relative performance around rate-cutting cycles.”