Morgan Stanley Chief US Equity Strategist Mike Wilson Talks ‘Liberation Day’ Not a Clearing Event

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There will still be volatility.

We're in this deep fog, pull over the side of the road and blinkers on kind of unservedia.

This is Bloomberg Surveillance with Jonathan Ferrell, Lisa Bromowitz, and Anne Marie Hordern.

The second Dow of Bloomberg Surveilance starts right now, and we start with some scores. Equity futures on the S and P five hundred negative by nine tenths of one percent on the Nasdaq. The NASDAK looks like this, the NASTAG one hundred 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 thirty.

It's April second, and it feels like the 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 US and they're trading partners.

Does Trump come.

In with a very maximalist approach or is this going to be the new trader rules of the road for this administration going forward.

We've all got a wake up to what's actually happening, and what's happening as more tariffs repeatedly over the last few months. So what's happening on Wall Street? More revisions? This from Goldman Sachs. So David Couston is now at fifty seven hundred year end, started the year at sixty five, dropped that to sixty two on a month ago. Fifty seven hundred is the year end Downlook. Then you've got Jan Hansis and the team at Goldman Sachs looking for

And what's driving a lot of that is the fact that for the second time this month, Goldman Saxe raised where they expect the tariff barriers to go, So they are expecting higher walls 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 teriffs.

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 Hasset, his NEC director, had this to say, I'm 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.

Not many people want to be long going into that event. Space to the move we're seeing this morning, We're down by nine tenths of one percent on the S and P coming up this soum. Mike Wilson of Morgan Stanley with stocks on a three day slide, Hendrod of Trays of Vada Partners as the world prepares for Liberation Day, and vic Ram Malholter of Mazoo and why AI data center concerns may be overblown. We begin this sound with

Well, I think that you know, everybody's looking for like a final piece here. This is gonna this is going to take time, you know, and not unlike a lot of the other policies that have come out this year, like this is this is what we kind of signed up for, right think to what 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 ad likened this to a new CEO coming in, right they have.

They're one a restructure to 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 a 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 of knowledge.

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, like, it's the NAFTA and so like you know, it's the best alternative to a negotiating agreement and the batna and that is that is classic negotiating tactic. You 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 engaging, okay. So that's 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 going to be very uncertain for a period of time.

I think some countries think that they are at the table because they sent a few representatives here in 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, is you avoid areas that are going to be most effective 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 position 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 works, some of those didn't work. But I think at this point you want to be up the quality courage, 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 sixty or ninety days, which you've seen all those mitigation strategies, something we work wrote

Some of the changes you have made the art work, and let's talk about them. International NEX this morning down two percent, nie K overnight down four percent. 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 US probably does better than these other regions because at the end of the day, those reasons you mentioned are most sensitive to global trade, particularly Japan. So the fact that was down four percent, I think is another sign that hey, actually in the market now is laser focused on this terror for trade issue as opposed to some of the other issues that it's been kind of worrying about here. So that relative value,

But you think that's European long sort of built up over the past few months, there might be in trouble here.

I think that's right.

I think there's a little extension in our European strategy team is in the same page. I mean, there are some good things going on in Europe that haven't been happening for decades potentially, But boy, that's gonna take that's gonna take even longer than this, you know, sort of tariff negotiation you're talking about, you know, country spending more money on fiscal deregulation. I mean, this is a multi year transition in the stock market. You know, some cases are fifteen to 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 or benefit in that regard, I think things that have levered to the consumer. But once again, these are these kind of got extended, you know, and from my standpoint, I think there's better value now in the US and some of these areas.

I'm sure you saw the new numbers coming out at Goldman Saxon, the same new full costs from Yon Hatsias. If we can just throw them up on the screen. One percent on GDP, three point five percent on PCEA, that's a stackflation remix. What are your time in clients that we're asking you about how we would tried stackflation in America?

We're not quite in the stagflation camp. We're more in the camp that you know, 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 don't we don't mess around with our year end targets, but we have been messing around with our short term targets. So we're in that fifty five hundred to I would say, fifty

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 you know, the policy changes that we expect could start to feed into the equity markets by year end. Could we pushed that timing out, you know, three six months?

Sure?

But you know, right now we're still in that fifty five hundred to sixty one hundred range with the probably a truncated upper band. And now if you get universal terrafs, 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 we're you know, we if we.

Break down this week and universal terrrifs for the reason, we could see something even lower than fifty five hundred 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, well, I think it's constructive.

I'm not sure it's wildly bullish, because you know, 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. I mean, you know, our vision, or I think the administration's vision quite frankly, it's very simple. They want to affect a slowdown in government. They want to kind of liberate the private economy through things like deregulation, keeping tax rates lower.

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 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 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 tariff's 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 going to be easy transition.

But John asks, what is.

The bullet story, you know, over the next twelve 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 so far is a is a.

Direction in that in that manner, and and looks stock operators and financial market operators just gonna have to deal with this adjustment. And that's that's what's the that's the consternation right now.

My Trump put versus FED put, who blinks first? And why?

Well, I mean I've taken the view that's probably the FED because growth is deteriorating further here now. In other words, I think that the concern around terrors on what that's doing to inflation is it kind of gave the FED excuse to take a break. Let's not let's not forget the FED kind of hundred basis points last fall really in the absence of any you know, labor issues. So

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 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 market 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.

My credit. See 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 stump market. The focus that we've had is main Street of a wolf Street, and that has a shift and a second term right ative to the first time.

That's the term I was going to use Main Street of a Wall Street, because it's the term the Treasury secretary he 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 US heartland.

Yeah. I want to add something here.

I think that I think people weren't aware of Trump's first term. We had a 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

That's just a setup that we're in.

Mike Clinic has always got to catch up. Appreciate it. Mike Wilson, that of Mark and Stanley