For the better part of three years, Morgan Stanley’s Mike Wilson insisted the US economy was mired in a “rolling recession.”

During that period, the economy expanded, profit margins remained historically robust, stocks rose (2022 aside), consumers spent and… well, you get the idea: Mike’s recession won’t be recognized by the NBER, which means it won’t be denoted by a grey-shaded area on FRED charts (or, for the “pros” among you, a red gradient on your terminal).

Still, Mike wasn’t wrong. Indeed, a majority on Main Street would wholeheartedly agree with Wilson’s recession characterization as evidenced by persistently subdued household sentiment over the period in question. That period was defined by a growing divide between the “haves” and “have-nots” both among households and corporates. For the “haves,” rate hikes weren’t a problem (in fact, they were a boon). For the “have-nots,” those same rate hikes were a death knell.

In the simplest terms: Wilson’s recession was contemporaneous with, and in a lot of respects synonymous with, Kyla Scanlon’s “vibecession.”

The other thing to note about Wilson in 2022-2024 is that he managed, through quite a bit of effort and what I’d call analytical gymnastics, to stay on the right side of the inexorable stock melt-up which overlapped the final two years of his three-year “recession.”

That was no small feat. The bear camp took some casualties during the AI bull run, one of them high profile. That Mike, a man famous in the financial media for bear calls, made it out alive is a testament to — how should I put this? — adroitness and agility.

With that in mind, Wilson says his three-year recession is over now, and he heads into 2026 as one of Wall Street’s biggest bulls. (If you can’t resist a contrarian indicator wisecrack, I won’t blame you. But try to be a modicum of polite about it.)

“The capitulation around Liberation Day marked the end of a three-year rolling recession and the start of a rolling recovery,” Wilson declared, in his year-ahead outlook which clocks in at a truly impressive 66 pages. “We believe that we’re in the midst of a new bull market and earnings cycle, especially for many of the lagging areas of the index.”

Some of Wilson’s analysis feels unavoidably partisan. That’s not necessarily a criticism, it just is what it is. He’d say it isn’t that, but… well, at various intervals he imparts to Donald Trump both good intentions and a kind of economic planning perspicacity that this administration simply doesn’t possess on any objective assessment. There are whole paragraphs in Wilson’s outlook which seem to assume something not unlike macro omnipotence for Trump’s cabinet. I’ll leave that there.

It’s obviously impossible to summarize 66 pages in 1,000 words, but the gist of Wilson’s argument is that the “Liberation Day” lows marked the beginning of “a two-year up cycle with firming pricing power and broadening earnings growth and will likely last until the Fed has to tighten policy again, as it can only tolerate inflation to a point.”

For Wilson, the Fed’s pain tolerance for any inflation re-acceleration’s “at least 12 months out.” (Never mind that inflation never returned to 2% in the first place.) He suspects — not implausibly — that the Fed will be more accommodative next year than a lot of market participants are inclined to believe, and that can help support rich valuations.

The figure on the left shows that when Fed funds is lower on a YoY basis and EPS growth’s above the median, valuations expand nine out of 10 times. “In this regard, one could argue we are being conservative in our forecast for modest multiple compression at the index level, ” Wilson said, adding that stocks tend to do well when the Fed’s cutting.

He went on to cite last quarter’s above-average top-line beat rate and a four-year high for median (note the emphasis) stock EPS growth on the way to suggesting that far from a late-cycle macro dynamic just waiting to tip into recession, we’re actually in “a classic early-cycle environment where compressed cost structures set the stage for positive operating leverage, a historic rebound in earnings revisions breadth and pent-up demand across wide swaths of the market/economy that were mired in the preceding rolling recession.”

As usual, Wilson’s analysis is trenchant. Nobody that I know of has ever accused Mike of cutting corners in that regard. As far as sell-side year-ahead equity outlooks go — which is to say if you’re going to put yourself through dozens of pages of tedious pontificating, most of which won’t pan out — you’re better off with Mike than most. At least you’ll learn something.

That said, I’d be completely remiss not to note that Wilson’s base case (SPX 7800) will feel indistinguishable from a best case to a lot of market participants. That is: It’s unapologetically optimistic and assumes that more or less everything goes right, or at least that nothing goes wrong.

To give you an idea what I mean, I’ve included a very short excerpt from Wilson’s piece below, along with a table which shows you his bear case and also a bull case in which the S&P rises to — wait for it — 9,000 by this time next year. (Here’s hoping!)

Presented without further comment:

We raise our 12-month S&P 500 price target to 7,800 (22x forward EPS of $356). This expectation incorporates higher-than-consensus EPS throughout our forecast horizon. We see 2025 EPS of $272 (12% growth), 2026 EPS of $317 (17% growth), and 2027 EPS of $356 (12% growth). Key drivers of our bullish earnings/cash flow view include a return of positive operating leverage, greater pricing power, AI-driven efficiency gains, accommodative tax and regulatory policies that facilitate a public-to-private growth transition, and contained interest rates throughout the curve. We expect valuation to compress modestly versus current levels, but stay elevated relative to history at 22x.