This episode explores the equity market's reaction to recent tariffs and offers predictions for the near future. Against the backdrop of already declining stock prices (many down 30-40%), the speaker, Mike Wilson, Morgan Stanley's CIO, views the market's response as a capitulation. More significantly, he highlights the underperformance of cyclical stocks relative to defensive stocks for almost a year, indicating a market anticipation of slowing growth. He attributes this to factors like unprecedented fiscal spending and strong consumer spending fueled by asset price gains. For instance, the speaker points out that headline employment and GDP numbers are flattered by government jobs and low-wage immigrant hiring, contributing to an economy of "haves and have-nots." He suggests three scenarios that could provide market support: a delay in tariff implementation, Fed intervention, or international negotiations. Ultimately, Wilson remains optimistic about the second half of the year, anticipating growth-positive policies to offset current headwinds.
