Morgan Stanley’s chief investment officer says the US equity market has just staged one of the most dramatic recoveries in recent history, and that investors sitting on the sidelines waiting for a better entry point may be about to repeat the most costly mistake of 2025.
In a new episode of the bank’s Thoughts on the Market podcast, Mike Wilson says the speed and strength of the rebound have left many investors expressing caution about the near-term path of equities.
But he notes that investors waiting for a significant pullback could get left behind.
“The market waits for no one once it decides to move on. From our perspective, this feels like last year.”
Wilson says investor caution may be misplaced, not because the risks don’t exist, but because the market has already done the work of pricing them in during the sell-off that preceded the bounce.
“Many investors are contemplating the lagging impacts of higher commodity prices on inflation, just like they were thinking through the effects of higher tariff rates a year ago. But we believe equity indices and many subgroups already suffered enough damage to account for these concerns. In other words, the equity market isn’t simply looking past the risks. It already priced them.”
Wilson also says the earnings backdrop is dramatically stronger today than it was during last year’s volatility, giving the current rally a much more solid foundation.
“Take into consideration that the earnings picture is much stronger today, with forward 12-month earnings growth approaching 25% versus just 9% a year ago.”
Wilson also pushes back on the widely held view that the rally is concentrated in a handful of mega-cap stocks, noting that the breadth of earnings growth is wider than most commentators acknowledge.
“We still hear many commentators suggesting that growth is only coming from a handful of stocks. While mathematically that’s a fair point for the top-heavy S&P 500, it doesn’t acknowledge that forward earnings growth for the median company and for small caps is also well into the double digits.”
On the CapEx cycle, Wilson says three converging tailwinds, strong earnings and cash flow, tax incentives from the Big Beautiful Bill, and surging demand from the AI buildout and reshoring of manufacturing, are adding another layer of support to the bull case.
“Early indications on this front are supportive, with the median stock CapEx growth running almost 10%, and our factor work continuing to show that the market is rewarding high CapEx.”
As of Monday’s close, the S&P 500 is trading at record-high levels at 7,173.
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