Bloomberg Audio Studios, Podcasts, Radio News. Very pleased to be joined this morning by Mike Wilson, chief US equity strategist at Morgan Stanley as we continue to watch the market reaction to all the trade headlines we've seen over the last days and weeks. Mike, good morning, Thank you so
much for being with us. We're seeing futures pull back this morning, a pop in the Vicks after the thirty five percent announcement on Canada fifteen to twenty, the President saying for much of the rest of the world, is the market starting to wake up to what could be coming when it comes to trade.
Good morning, Good morning, Nathan Well, I would say, here we go again, you know, like we kind of know the pattern now. I mean, this is President Trump's style. Hill he goes hard and then he you know, he doesn't cut back off completely. But it's it's a back and forth. And that'sotiating style. You know. It's the old bat now where you put your stake in the ground and aggressively and then you try to negotiate something. And so the market has figured this out though, and I
think President Trump has figured it out too. But what I've found interesting is that he'll come out and do something you know, uh that's perceived quite negatively, Like overnight, the market will go down a percent and then he'll you know, something will change and then the market will go up two percent, you know. So it's like one step back, two steps forward. Now, that's not going to work forever. Eventually we have to get to some deals,
so you know, we're getting closer. I think, you know, he's just trying to exert as much pressure as he can to try and get some deals done before these deadlines. These deadlines get pushed back, and that's that's a classic negotiating style. So we'll see if it's successful. But you know, as you mentioned, the market seems to be okay with it for now, and that you know, I think as you're there's an article you mentioned, I think it does embolden him to continue to go down this path.
Give it where the future's action is going this morning. Do you see the market trying to steer what the president could do when it comes to the overall trade regime?
Yeah, I mean I think that it's a good thing to think about. I mean, is the market going to exert its force to kind of to make all the folks involved in this policy making to come to some sort of conclusion. Hasn't happened yet, there will become a point of exhaustion, is the way I like to think about it. To me, that's probably sometime during the third quarter.
I think the other thing that could happen in the third quarter that may exert some pressure is that so far the terriffs haven't really had an impact on margins and revenue or demand. And some of that has to do with the timing of everything. Right. We have a lot of companies still selling older inventory that's cheaper, so it hasn't had to flow through the pricing or margins.
But that we think begins to change in the third quarter, and that could be the catalyst because stocks will react to hits to margins, or perhaps we get a spike in inflation, which you know then causes the Fed the town we're hawk ish and the market will care about that for sure.
Do you expect companies to start to telegraph that in their earnings forecast? We've started to see some companies talk about what the tariff impact could be as they've been reporting in the early going. How do you see that shaking out.
Yeah, so I think it's primarily an issue. It's going to be an issue for you know, some of the consumer companies where they don't have a lot of pricing power, they've got probably some excess inventory, you know, on purpose, or maybe they did that because they won't you know, they wanted to get ahead of the tariffs. And so I do think that that's the part of the market where we could start to hear. Second quarter should be fine.
It's going to be about the third quarter guidance. And those companies I mentioned tend to report towards the end of earning season, so end of July early August is when I would expect to hear more certain negative comments there. I think in the early parts of earnings we're not going to hear much negativity around that. You know, financials don't have a lot of you know, tariff implications. Some of the bigger companies can mitigate this. The weaker dollar
is quite helpful. Is an offset to the multinationals, and now we have lower oil prices, which I think is also an offset for some of the terrors from a consumer standpoint.
Do you expect dollar weakness to continue if we do see higher terrorf freights shake out across across the world.
Well, we have a weaker dollar view over the next twelve months, mainly because of the rate differential. We expect many of the Fed it's going to be cutting probably more aggressively. They have more to cut than other central banks around the world. That's the primary driver. And then of course, you know, as inflation does eventually come down, we think this is a temporary spike in inflation from terrors.
That would be another driver. So in the very near term, I think one of the bigger risks of the market people aren't thinking about is that we could see a dollar rally, just a counter trend move, like the trend is down, but you know, nothing goes straight down all the time, and the dollar does look to me like it's trying to state a rally here that actually could be somewhat of a negative for equities in the third quarter.
Are potentially nothing dramatic, but I mean, I think that's probably a bigger risk than people are thinking about.
Tell me a little bit more about why you think there could be a rally in the dollar, because there's been you know, some thought that with you know, this aggressive trade stance that the President's been taking that it could spark a negative reaction from the currency traders in terms of what other countries do.
Well, I think we've seen that, right. I mean, you know, markets trade in advance, and I think the currency market has pre traded a lot of what you just said. I mean, quite frankly, given the FED. The Fed's been on hold all year and many of its peers around the world have been cutting rates. The dollar, you know, I mean should have been stronger and it hasn't been. So I think I think a lot of the tariff concerns are in the currency market, and so that's digested.
You know, what's not in the market. It still is this idea that the Fed's on hold, and it's our calls that the Feds are on hold the rest of this year, I think, I think, you know, at least to the third quarter. And so to me, it's just a counter trend rally. And then of course I'm a technician, like a lot of investors, and it looks to me like it's trying to stage a tactical rally. That's all we're looking for.
Okay, So in our last thirty seconds, do you expect to continued US leadership when it comes to stocks compared to the rest of the world.
I do I think, you know, I think we have a pretty good clean out in April. This has been our call since April. The rate of change on everything we look at from a stock standpoint reversed by the way. It doesn't mean that foreign stocks, you know, can't perform too, But I do not believe in this idea that we're going to have this multi year run in foreign equities relative to the US's and I think that's played out since we made that call in early April.
And thanks so much, Mike. Always great to have you with us on daybreak. That's Mike Wilson. He is chief US equity strategist at Morgan Stanley