We’re mid-cycle, and market participants might consider acting accordingly.

That’s the message from Morgan Stanley’s Mike Wilson, who reckons quality’s “back in favor” two months on from a historical rally in semis, the “classic” early-cycle outperformer.

“We recommend[ed] a preference for lower-quality cyclicals near the trough of the ‘Liberation Day’ lows and then pivot[ed] in July of this year to a large-cap quality preference,” Wilson reminded investors.

The Icarus moment for semis came last month, when the SOX plunged the most since October of 2008. It remains in a bear market, down 20% from its late-June peak.

Semis were of course a big factor in the upswing for profit revisions which served as the fundamental rationale for many a bull case. “[S]ince the peak rate of change on earnings revisions breadth in June, the equity market has gone through a significant change in leadership,” Wilson wrote.

The figure on the left, above, shows you revisions breadth peaking and rolling over (blue line). The figure on the right’s an updated version of Wilson’s SOX / silver chart which, my aversion to such “analogs” aside, is amusing if nothing else.

“[Semis are] unlikely to re-take the mantle of price momentum leadership in the near-term,” Wilson went on. “This fits with the rotation from early-cycle to mid-cycle stocks and quality.”

Why bring this up? Well, because there’s a (loose) tie-in with the point I made here on Tuesday regarding the read-across from the Chinese credit impulse for US equities.

In that linked article, I quoted SocGen’s Albert Edwards, who called attention to the apparent link between the change in China’s credit provision as a share of GDP and the YoY performance of the S&P.

The transmission mechanism’s not complicated. As Edwards put it, Chinese credit growth “correlates (and causes) much of what is cyclical,” including and especially revisions breadth. And what drives equity returns? The outlook for corporate profits.

It’s worth placing that in the context of the cycle discussion from Wilson’s latest. The charts below do just that.

Those visuals are from the same Edwards piece. As you can see on the left, the Chinese credit impulse is a very good (or in this case very “bad”) leading indicator for ISM manufacturing.

The ISM factory gauge, you’re reminded, is experiencing a pretty epic upturn in 2026, having printed in expansion territory every month this year.

It’s not a coincidence that the would-be US manufacturing renaissance occurred against a backdrop of soaring semis.

As the two-month-old figure above, from BofA, reminds you, the SOX maps pretty well onto ISM manufacturing.

The implication from all of the above isn’t necessarily that benchmark US equities are destined for a selloff. The S&P 500, after all, “is the highest-quality index in the world,” as Wilson was keen to note.

But if these ostensible analogs and quasi-correlations are any indication, we might’ve seen “peak cycle,” so to speak. The downturn in US jobs growth in July speaks to the same.

Commenting further on the link between the Chinese credit impulse and “all things cyclical,” Edwards wrote that while “correlation doesn’t imply causation,” to ignore the appearance of a connection is to be derelict.

I could be wrong, but Albert seems like a “there are no coincidences” type of guy.