Morgan Stanley's Wilson Says AI Cycle Just Getting Going
Summary
- New Economic Cycle Confirmed: Wilson asserts the market has passed "Liberation Day," marking the end of a rolling recession. We are now in a new earnings and economic cycle, evidenced by double-digit earnings growth for the median stock in the Russell 3000 for the first time in four years.
- The "Broadening" Thesis: The primary story is no longer just about the S&P 500 index level (which may remain range-bound short-term); it is about the rotation into lagging sectors like financials, industrials, and consumer goods that are emerging from a three-year recession.
- AI Cycle Longevity: Despite current volatility and fears regarding CapEx returns, Wilson believes it is premature to end the AI trade. He views the AI cycle as "just getting going."
- Fed Chair Volatility: The market is entering a "testing period" regarding the new Fed Chair nominee, Kevin Warsh. Wilson expects potential market struggles for 1-2 months during the confirmation process, followed by a rally to 7000 on the S&P 500 in the second half of the year.
Trade Ideas
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 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.
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.
Up Next
This Bloomberg Markets video, published February 18, 2026, features Mike Wilson discussing XLY, XLI, XLF, BOTZ, XLK, SPY. 3 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Mike Wilson · Tickers: XLY, XLI, XLF, BOTZ, XLK, SPY