Mike Wilson 3.5 18 ideas

Speaker advocates for a portfolio shift from traditional 60/40 to a 60/20/20 model, with the 20% alternatives allocation including gold as a defensive asset. In a fiscal-dominant, inflationary regime, gold protects against currency debasement and serves as a hedge when the defensive function of long-duration bonds is compromised. Long gold as a strategic, non-yielding asset for portfolio diversification and inflation hedging. A return to a Volcker-like Fed prioritizing inflation fighting above all else, driving real rates sharply higher.

Speaker states he was "much more bullish on the metals and some of the materials than we were on energy" and currently thinks "the better trade now" is to fade energy and go back to materials/metals. Metals and materials are leveraged to global industrial recovery and infrastructure capex (e.g., Big Beautiful Bill), without the geopolitical supply shock dynamics currently plaguing oil. Long non-energy minerals (metals, materials) as a preferred cyclical exposure within commodities. A global recession halting the industrial recovery and commodity demand.

Speaker highlights consumer discretionary as a sector coming out of a recession, benefiting from policy changes, deregulation, and pent-up demand. The sector is a direct beneficiary of the rolling recovery, wage growth for lower/middle-income workers, and potential Fed rate cuts. Long consumer discretionary to capitalize on the cyclical recovery in consumer spending and earnings revisions. A sharp, sustained spike in oil prices crushing discretionary consumer budgets.

Speaker explicitly states "you want to kind of fade energy a little bit" after its recent rally and prefers materials/metals. The energy rally is driven by a transient geopolitical shock; the trade is crowded and the logistical oil crisis is expected to be resolved under economic pressure. Avoid energy as a tactical call to reduce exposure after a sharp run-up driven by event risk. The Iran conflict escalates permanently, sustaining oil prices at recession-inducing levels ($150+).

Wilson states that "lagging areas" like "consumer goods," "financial sector," and "industrials" are "just now starting to emerge" after being "mired in a recession for the last three years." He notes industrials are getting a boost from CapEx and years of under-spending. The "rolling recession" is over for these specific sectors. While the headline S&P 500 might stall, capital is rotating into these historically depressed areas as their earnings growth accelerates (median stock earnings are now double-digit). This is the definition of a "broadening" rally where value/cyclicals outperform the index. LONG these sectors to capture the rotation and economic recovery phase. A resurgence of broad economic recession or failure of earnings growth to materialize in these specific sectors.

Wilson maintains a "7000 dollars price target for the S&P by the end of this year." He notes the market may struggle for "another month or two" due to the Fed Chair nomination process (Kevin Warsh) but expects a "really good second half." The short-term friction is political/administrative (Fed confirmation testing), not fundamental. Once the uncertainty of the Fed transition resolves, the "new economic cycle" will drive the index to new highs (7000). LONG S&P 500, utilizing any short-term volatility during the Fed Chair confirmation hearings as a buying opportunity. The new Fed Chair (Warsh) signals a hawkish policy shift that compresses multiples, or the "testing period" results in a deeper correction than anticipated.

Wilson argues it is "premature to kind of throw a cold blanket on the AI cycle" and explicitly states, "It's just getting going." The market is currently worried about AI CapEx ROI and labor disruption, causing volatility. Wilson identifies this as a temporary "testing period" rather than a structural end to the trend. If the cycle is "just getting going," current dips represent entry points before the next leg up. LONG AI and Tech exposure, looking past short-term noise. Disappointing earnings from hyperscalers or regulatory crackdowns on AI development.

"The Fed is obligated to help financial markets operate... [they] have to play ball in terms of their role to help the government fund itself." Wilson argues that "Fed Independence" is effectively over regarding fiscal dominance. If the Fed's priority is ensuring the Treasury can fund the government (preventing failed auctions or sovereign debt crises), they are implicitly backstopping the financial system. This suggests a structural liquidity floor (or "Fed Put") exists to prevent market dysfunction, which is supportive of risk assets. LONG. The coordination between Treasury and Fed reduces the tail risk of a liquidity crisis. Inflation re-accelerating due to fiscal dominance, forcing the Fed to choose between funding the government and fighting price stability.

"We're seeing productivity increase already. We're seeing GDP increase, we're seeing earnings broaden out. And so as long as you're seeing results like that, I think they're going to stay the course." Wilson highlights a shift from narrow market leadership to a "broadening" of earnings. When earnings participation widens beyond the top mega-caps, the equal-weight S&P 500 (RSP) or the broader market (US Equities) tends to outperform or stabilize relative to a top-heavy concentration. High productivity and GDP growth underpin a fundamental bull case for the average stock. LONG. The macro data supports a healthy, widening market rally rather than a recessionary contraction. Policy-induced volatility from an "active" White House could disrupt sentiment temporarily.

Wilson states the US is in a "new earnings and economic cycle" following the end of a rolling recession. Crucially, the median stock is now seeing double-digit earnings growth year-over-year, a shift from when growth was concentrated solely in Big Tech. When earnings growth broadens beyond the "Mag 7," valuation spreads typically narrow. This favors the "Average Stock" (Equal Weight S&P 500) and cyclical sectors (Financials, Industrials) over the heavy-weight tech plays that have dominated recent years. LONG the "Broadening Trade" via Equal Weight ETFs and cyclical sectors. A deterioration in earnings revisions or an exogenous shock (e.g., aggressive Fed hiking).