Banking giant Morgan Stanley believes that the recent market swings resemble the growing pains of a new investment cycle, not the beginnings of a broader downturn.
In a new episode of the bank’s Thoughts on the Markets podcast, Morgan Stanley CIO Mike Wilson says the correction in tech today is typical of an early-stage bull market.
He also points to a key factor that makes the current cycle different from the excess witnessed during the dot-com bubble.
“What we’re seeing now is typical of a major investment cycle. Volatility increases as markets challenge the pace of unbridled spending. Dispersion increases as investors debate winners and losers. Leadership rotates, sometimes sharply.
There’s also something different this time compared to the internet bubble of the late 1990s. Today, we’re in an early-cycle earnings backdrop. We’ve just emerged from what was effectively a rolling recession between 2022 and 2025.”
According to Wilson, the “SaaSpocalypse” is the market voting that software will be the loser amid the AI-driven cycle.
“As capital rotates out of the perceived structural losers, it’s not just chasing long-term AI beneficiaries. It’s also finding classic cyclical winners. On the losing side are long-duration, services-oriented sectors, particularly software. These areas are more sensitive to uncertainty around longer-term cash flows.”
Turning to potential winners, Wilson names several plays that are positioned to benefit from AI and a stronger economy.
“With this backdrop, a quality cyclical barbell with health care makes sense. In small caps, the higher quality S&P 600 looks more attractive than the Russell 2000. Any short-term volatility could present opportunities to add exposure in preferred cyclical areas like consumer discretionary goods, industrials and financials.”
Despite the market turbulence, Wilson says that the internal signals are clear.
“Beneath the volatility, this looks less like a market rolling over and more like one that is confirming an early-cycle economic expansion.”
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