If you ask me, the most interesting aspect of Mike Wilson’s 48-page mid-year US equities outlook, released on Monday, wasn’t his relatively constructive base case for stocks. (When you’re Wilson, 2% upside over 12 months counts as constructive.) Rather, it was the enormous spread between his bull case and bear case views.

After missing part of a 30% rally from the October lows, Wilson backed away this year from grandiose pronouncements about the likely trajectory of benchmark equity indices, citing pervasive macro-policy ambiguity. That’s not to say he didn’t have a target for the S&P. He obviously did. It was 4,500. It’s just to say he seemed keen to de-emphasize index-level guesstimates in favor of sector-level analysis.

I don’t see much use in regaling readers with the history of a rally that everyone witnessed with their own two eyes, nor with dwelling on who missed it. Suffice to say stocks are up handsomely and not everyone saw it coming. A handful of skeptics are still unwilling to raise their targets. As of Monday, Wilson’s no longer one of them. His 12-month target (i.e., June 2025) for the S&P is now 5,400. That’s a 19x multiple on 12-month forward EPS of $283.

In the bank’s base case, index-level earnings grow 8% and 13% this year and next, respectively, on “healthy, mid-single-digit top-line growth” and margin expansion in both years. The negative operating leverage which informed Wilson’s bear case in 2022 and into 2023 should reverse going forward, he said, adding that his base case incorporates Morgan Stanley’s house growth forecasts, as well as “output from our earnings models” and an optimistic view on the prospects for AI to boost margins beginning next year. (A quarter of the 2025 net income Wilson expects for the index is attributable to groups and sectors he sees as particularly likely to benefit from “AI-driven efficiency gains.”)

Wilson made an interesting point about consensus and macro ambiguity. To wit:

In addition to the unprecedented combination of monetary and fiscal policy support post-COVID, we have also experienced de-globalization, a secular rise in interest rates/cost of capital, an increase in geopolitical tensions (multi-polar world), a shift in power from capital to labor and a potential increase in taxes to pay for the accumulated debt of the past 30 years. The data releases themselves have become a bit more unreliable with the revisions larger and more frequent compared to history. This has also been the case with much of the soft data, too, given the lower response rates to traditional surveys. As a result, forecasting has become more challenging with a wider band of potential outcomes emerging, in our view. Ironically, despite this less predictable world, forecasters have actually huddled closer together with fewer outliers. This is true at both the macro and micro level. We attribute this dynamic to the fact that when uncertainty is high, humans are less inclined to go out on a limb and more inclined to coalesce around the consensus view.

He tried to illustrate with two figures, one showing core CPI forecast dispersion, the other earnings estimate dispersion. Both are (obviously) off the highs seen in 2021, but they’re above pre-pandemic levels, so I’m not sure the charts are as conclusive as Wilson would like them to be. But I take his point.

“Tighter forecasts combined with a wider range of outcomes is a recipe for more volatile prices [and] as a result, we think it makes sense to present a wider range of bull and bear case price targets than usual,” he wrote.

As the figure above shows, the range is wide indeed. Wilson’s bear case for the S&P is 4,200. The bull case is 6,350.

That’s more than 2,000 index points, which is a lot when you’re talking about an index that currently “has” only 5,300. Without casting aspersions, I’m not sure how useful it is to say that by this time next year, US equities may be 20% higher, 20% lower or roughly unchanged.

In the note, Wilson actually presents two bull cases (“Bull Case 1: More of the Same” and “Bull Case 2: No Landing Driven by Better Organic Growth and Higher Productivity”) and two bear cases (“Bear Case 1: Hard Landing/Recession” and “Bear Case 2: Inflation Surprises to the Upside”).

The first bull case entails loose fiscal policy enabled by ample liquidity which in turn facilitates a continuation of the current bullish, if unstable, no landing zeitgeist. The second bull case imagines a kind of best-case scenario, characterized by what Wilson described as “a virtuous wage/income circle that drives sustainable consumption growth from the low- and middle-income cohorts [while] fiscal support fades as it is no longer necessary and the risk of a rapid term premium rise in the Treasury market dissipates considerably.”

The first bear case is just what it sounds like: A hard landing and a recession. The second bear case is equally straightforward: Inflation doesn’t recede and the Fed has to pursue a higher terminal rate.

All told, Wilson presented 75 charts and tables across four-dozen pages. An admirable effort to be sure, although I’d be remiss not to suggest it seems like a lot of work to say anything can happen.