Morgan Stanley’s Mike Wilson, known to some as the man who predicted the Q4 2018 swoon in US equities, has been generally constructive since the pandemic panic lows in March.
In other words, he’s been bullish. And that’s been the right call.
Headed into 2021, his conviction in that regard isn’t shaken despite the rally being “a bit exhausted at the moment,” as he described things in a Sunday note.
As those who keep themselves apprised of sellside forecasts and year-ahead outlooks are aware, Morgan Stanley is all-in on the “V-shaped” recovery narrative.
Based on their 2021 macro outlook, the bank is (more than) confident in that call, despite it being a bit optimistic relative to more cautious forecasts, which generally hold that the global economy suffered structural damage in 2020. “This projection stands in stark contrast to the consensus, who worry that the pandemic will have a bigger impact on private sector risk appetite and hence global growth,” the bank wrote, on November 15.
Given that, it’s not surprising that Wilson calls himself “a steadfast bull on a 12-month view in terms of both the earnings outlook and the market.”
He does admit that things could be touch and go for a while given the surge in infections and new lockdowns across the US. “I see the risk of one more drawdown before year-end,” Wilson said Sunday, adding that “stocks are elevated and may have to contemplate a second wave in the absence of a fiscal deal and before the vaccines can be widely distributed.”
But if you ask Wilson, markets are poised for substantial and sustained upside once the vaccine is distributed and the page turns on what has been a truly dark year for the world.
“New bull markets that coincide with a new economic cycle last for years, and the business cycle trumps the political one,” he went on to write. “We look forward to a more normal year in 2021 [and] expect US equities to remain firmly in a bull market.”
Morgan Stanley favors small-caps and cyclicals that are sensitive to the economic rebound. The S&P 500, Wilson says, has 10% upside over the next 12 months.